ACC 231 Lecture Notes - Lecture 21: Financial Statement, Financial Analysis, Income Statement
ACC 231
Lecture 21
Chapte 12
● Financial analysis is the process of using a business’s financial statements, and other
related information, to evaluate whether a business is creating value.
● Financial analysts are people who perform financial analysis by using the reports
provided by accountants and others to evaluate the past and current performance of a
business.
● There is nothing harder in the financial world than the valuation of a business.
Things to think about when analyzing a company:
● Understand the Company’s Business Model and Strategy. Found in the Management
Discussion and Analysis section of the financial statements (10-K).
● Understand the Environment that the business operates in: Economic environment,
Competitive Environment, Benchmarking.
● Analyze content: Look at audit opinion, Determine methods of valuation (inventory,
PP&E).
● Analyze Operations…Financial Statement Analysis
● Discontinued Operations vs Continuing Operations
● Use Financial Statement Analysis to determine strengths and weaknesses and what the
value of the company is.
Continuing operations vs discontinued operations:
● Discontinued operations includes major lines of business that have been disposed of or
are held for sale
● The key is that the component must be a strategic shift (Disposing of an entire business
segment or a geographic region)
● -IFRS uses a similar definition: separate major line of business or geographical area of
operations.
Document Summary
Financial analysis is the process of using a business"s financial statements, and other related information, to evaluate whether a business is creating value. Financial analysts are people who perform financial analysis by using the reports provided by accountants and others to evaluate the past and current performance of a business. There is nothing harder in the financial world than the valuation of a business. Things to think about when analyzing a company: Understand the company"s business model and strategy. Discussion and analysis section of the financial statements (10-k). Understand the environment that the business operates in: economic environment, Analyze content: look at audit opinion, determine methods of valuation (inventory, Use financial statement analysis to determine strengths and weaknesses and what the value of the company is. Discontinued operations includes major lines of business that have been disposed of or are held for sale.
