1 / 13

Module C Financial Statement Analysis: Investing Activities

Module C Financial Statement Analysis: Investing Activities. Topics Review cash flows and other financial statement effects related to investments in debt and equity securities

stevenbmartinez
Download Presentation

Module C Financial Statement Analysis: Investing Activities

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Module CFinancial Statement Analysis:Investing Activities

  2. Topics • Review cash flows and other financial statement effects related to investments in debt and equity securities • Review cash flows and other financial statement effects related to investments in long-lived operational assets • Understand effects of investments on the financial ratios identified in Module A

  3. Learn the balance sheet and income statement [pro forma informal] adjustments made by many financial analysts in the process of analyzing the effects of investments on the profitability and risk of the firm • Identify the quality of earnings [pro forma informal] adjustments made by analysts in the area of gains and losses on investment transactions

  4. Review Cash Flows and Other Financial Statement Effects Related to Investments in Debt and Equity Securities • Investments in debt and equity securities • Statement of cash flows • Trading securities viewed asoperating activities • All other investments viewed asinvesting activities

  5. Statement of cash flows • Dividends on stock investments viewed asoperating activities • Exception: Dividends on investments accounted for using the equity method do not affect income, but, instead reduce investment. • Interest on debt investments viewed asoperating activities • Unrealized gains/losses on tradingsecurities are noncash revenue; adjust out of net income

  6. Income statement • Trading securities: Interest, dividends, and unrealized gains/losses reported in “other gains/losses” section • AFS securities: Interest and dividends reported in “other gains/losses” section • Equity-level securities: pro-rata share of investee’s net income reported in “other gains/losses” section • HTM securities: Effective interest revenue reported in “other gains/losses” section

  7. Statement of comprehensive income • Unrealized gains/losses on available-for-sale securities are reported as other comprehensive income

  8. Review Cash Flows and Other Financial Statement Effects Related to Investments in Long-lived Operational Assets • Statement of Cash Flows • Transactions reported as investing activities

  9. Income statement • Affected by depreciation and amortization expense • Research and development costs are expensed • Interest cost on long-lived construction in process is capitalized • Balance Sheet • Reports unallocated historical cost

  10. Understand Effects of Investments on the Financial Ratios Identified in Module A • Module A ratios reviewed include • ROA • Net profit margin ratio • Asset turnover ratio Compared to WHAT?

  11. Short-term liquidity risk • Current ratio • Quick ratio • Long-term solvency risk • Operating cash flow to capital expenditures ratio • Average age of assets in place

  12. Learn the Balance Sheet and Income Statement Adjustments Made by Many Financial Analysts in the Process of Analyzing the Effects of Investments on the Profitability and Risk of the Firm • Persistence of gains/losses and long-lived assets sales and writedowns • Discretion in unrealized gains and losses on available-for-sale securities (i.e., gains trading)

  13. End of Module C

More Related