Chapter 2 - Financial statements and analysis. A routine step in personal financial planning is to prepare and analyze personal financial statements, so that you can monitor progress toward your financial goals. Also, you need to understand and analyze corporate financial statements to build and monitor your investment portfolio. | Chapter 2 Financial Statements and Analysis Learning Goals Review the contents of the stockholders’ report and the procedures for consolidating international financial statements. Understand who uses financial ratios, and how. Use ratios to analyze a firm’s liquidity and activity. Discuss the relationship between debt and financial leverage and the ratios used to analyze a firm’s debt. Learning Goals (cont.) Use ratios to analyze a firm’s profitability and market value. Use a summary of financial ratios and the DuPont system of analysis to perform a complete ratio analysis. The Stockholders’ Report The guidelines used to prepare and maintain financial records and reports are known as generally accepted accounting principles (GAAP). GAAP is authorized by the Financial Accounting Standards Board (FASB). The Sarbanes-Oxley Act of 2002, passed to eliminate the many disclosure and conflict of interest problems of corporations, established the Public Company Accounting Oversight Board . | Chapter 2 Financial Statements and Analysis Learning Goals Review the contents of the stockholders’ report and the procedures for consolidating international financial statements. Understand who uses financial ratios, and how. Use ratios to analyze a firm’s liquidity and activity. Discuss the relationship between debt and financial leverage and the ratios used to analyze a firm’s debt. Learning Goals (cont.) Use ratios to analyze a firm’s profitability and market value. Use a summary of financial ratios and the DuPont system of analysis to perform a complete ratio analysis. The Stockholders’ Report The guidelines used to prepare and maintain financial records and reports are known as generally accepted accounting principles (GAAP). GAAP is authorized by the Financial Accounting Standards Board (FASB). The Sarbanes-Oxley Act of 2002, passed to eliminate the many disclosure and conflict of interest problems of corporations, established the Public Company Accounting Oversight Board (PCAOB), which is a not-for-profit corporation that overseas auditors. The Stockholders’ Report (cont.) The PCAOB is charged with protecting the interests of investors and furthering the public interest in the preparation of informative, fair, and independent audit reports. Public corporations with more than $5 million in assets and more than 500 stockholders are required by the SEC to provide their stockholders with an annual stockholders report. The Four Key Financial Statements: The Income Statement The income statement provides a financial summary of a company’s operating results during a specified period. Although they are prepared annually for reporting purposes, they are generally computed monthly by management and quarterly for tax purposes. The Four Key Financial Statements The Four Key Financial Statements: The Balance Sheet The balance sheet presents a summary of a firm’s financial position at a given point in time. Assets indicate what the firm owns, equity represents the
