Main Finance Statements and Steps in Performing Accounting Analysis

Topics: Financial statements, Balance sheet, Income statement Pages: 26 (1129 words) Published: October 14, 2014
Financial information and firm performance
Accounting and financial statement analysis
Paulo Alves & Joana Fontes (2014/2015)

Topics for this session
Review of main financial statements
Steps in performing accounting analysis
Case study: Euro Disney and the first five steps of accounting analysis

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Review of main financial statements

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Income statement
Provides a summary of the revenues
(increases in economic benefits) and
expenses (decreases in economic
benefits) over a period of time

EXAMPLE Inc. – Income Statement / April 30, 2013

Provides information about the
firm’s performance, showing
whether the firm was profitable over
the period

Net income = Revenues – Expenses

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Balance sheet or Statement of financial position
Provides information about the
economic resources controlled by
the firm (Assets) which is useful to
estimate firm’s ability to generate
future cash flows
Provides information about the
firm’s financial structure (Liabilities
and Equity) which is useful to:
◦ predict future finance needs and
earnings distributions
◦ predict firm’s ability to repay its
liabilities according to agreed terms

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Net assets = Equity
Assets = Liabilities + Equity

Joana Cardoso Fontes & Paulo Alves (2014/2015)

Statement of changes in equity

Provides a summary of the
contributions and distributions to
equity holders and the
comprehensive income of the year;

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EXAMPLE Inc. – Retained Earnings / April 30, 2013

Joana Cardoso Fontes & Paulo Alves (2014/2015)

Statement of cash flow
Provides a summary of cash
coming in (+) and cash going out
during period, by type of activity:

EXAMPLE Inc. – Retained Earnings / April 30, 2013

◦ Operating activities
◦ Investing activities
◦ Financing activities

Provides information about
increase/deterioration of firm’s
liquidity position and ability to
generate cash flows

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

BALANCE SHEET

Integration of FS
INCOME STATEMENT

CASH FLOW STATEMENT

STATEMENT OF CHANGES IN EQUITY

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Main financial statements
Financial statement

Information about

Balance sheet
(Statement of financial
position)
Income statement
(Statement of profit and
loss)
Statement of cash flow

Statement of changes in
equity

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Elements of the financial
statement

Main financial statements
Elements of the financial
statement

Financial statement

Information about

Balance sheet
(Statement of financial
position)

net assets and
financial position

Assets, Liabilities and Equity

Income statement
(Statement of profit and
loss)

performance (i.e.
changes in net assets)

Income and Expenses

Statement of cash flow

changes in financial
position

Receipts and Payments

Statement of changes in
equity

changes in shareholders’
funds

Contributions from
(distributions to) equity
holders

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Exercise 1
Using Sonae Sierra consolidated financial statements for the yearend 2013, identify the financial statement(s) which provide the amount of:





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Assets;
Net income;
Retained earnings;
Cash and cash equivalents.

Joana Cardoso Fontes & Paulo Alves (2014/2015)

Exercise 2
Assume that bank XPTO is interested in finding answers to the following questions about a company applying for a loan. In each case, indicate which of the four financial statements the bank should examine first to answer the question. If appropriate, also indicate which other financial statement(s) would provide further support for the answer.

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Joana Cardoso Fontes & Paulo Alves (2014/2015)

Steps in...
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