copyright © 2009 pearson education canada13-1 chapter 13 analyzing and using financialinformation

Copyright © 2009 Pearson Education Canada 13-1

Chapter 13Chapter 13

Analyzing and Analyzing and UsingUsing

FinancialFinancial

InformationInformation


What Is Accounting?What Is Accounting?CommunicationCommunication

Mea

surin

gM

easu

ring

InterpretingInterpreting

FinancialFinancialaccountingaccountingFinancialFinancial

accountingaccountingManagementManagementaccountingaccounting

ManagementManagementaccountingaccounting

Decision MakingDecision Making


What Accountants What Accountants DoDo

What Accountants What Accountants DoDo

Tax Tax accountingaccounting

Tax Tax accountingaccounting

BookkeepingBookkeepingBookkeepingBookkeeping

FinancialFinancialanalysisanalysis

FinancialFinancialanalysisanalysis

Cost Cost accountingaccounting

Cost Cost accountingaccounting


Ten Most Important Ten Most Important Accounting SkillsAccounting Skills

• Analytical

• Problem solving

• Interpersonal

• Listening

• Communication

• Leadership

• Decision making

• Time management

• Teamwork

• Computer


Types of Types of AccountantsAccountants

• Private or (Corporate) accountants work for a businesses other than a public accounting firm

• Public accountants, are independent of the clients they serve

• Most are employed by accounting firms

• Members of the firm are generally CA’s

PrivatePrivate PublicPublic


Types of Types of AccountantsAccountants

Chartered Accountant (CA)

Certified Management Accountant (CMA)

Certified General Accountant (CGA)


Accounting RulesAccounting Rules

Generally AcceptedAccounting Principles

(GAAP)

Financial Accounting Standards Board

(FASB-U.S.A.)

Canadian Institute of Chartered Accountants

(CICA-Canada)


The Sarbanes-Oxley Act The Sarbanes-Oxley Act (US)(US)

Bill C-198 (Canada)Bill C-198 (Canada)• Affects: Loans to directors and executives External auditors Corporate lawyers and wrongdoing Non-audit services by external auditors Audit committee and board of director structure Investment bankers and stock analysis CEO and CFO accountability and financial

statements Internal financial controls and processes


Fundamental Fundamental Accounting Accounting ConceptsConcepts

The accountingequation

Double-entrybookkeeping

The matchingprinciple


The Accounting EquationThe Accounting Equation

Owner’s Equity:

Accounting Equation:

Assets = Liabilities + Owner’s Equity

Assets – Liabilities = Owner’s Equity


Basic Accounting Basic Accounting ConceptsConcepts

Double-entryDouble-entrybookkeepingbookkeepingDouble-entryDouble-entrybookkeepingbookkeeping

Matching Matching principleprinciple

Matching Matching principleprinciple

CashCashbasisbasisCashCashbasisbasis

AccrualAccrualbasisbasis

AccrualAccrualbasisbasis

CashCashpurchasepurchase

CashCashpurchasepurchase

CreditCreditpurchasepurchase

CreditCreditpurchasepurchase


How Are Financial Statements How Are Financial Statements Used?Used?


Understanding Understanding Financial Financial

StatementsStatements

Balance sheetBalance sheet

Income statementIncome statement

Cash-flow statementCash-flow statement


The Balance SheetThe Balance Sheet

Assets

Liabilities and Shareholder’s Equity

Current Assets Fixed Assets

Current Liabilities

Long-TermLiabilities

Shareholder’sEquity


The Income StatementThe Income StatementThe Income StatementThe Income Statement

Operating Operating expensesexpenses

Operating Operating expensesexpenses

RevenuesRevenuesRevenuesRevenues

Net incomeNet incomeafter taxesafter taxesNet incomeNet incomeafter taxesafter taxes

Cost of Cost of goods soldgoods sold

Cost of Cost of goods soldgoods sold


The Cash-flow The Cash-flow StatementStatement

Operations

Investments

Financing


Analyzing Financial Analyzing Financial StatementsStatements

Trend AnalysisTrend Analysis Ratio AnalysisRatio Analysis

Consider morethan one ratio

Uncover business shifts

Consider extraordinarycircumstances

Check specific data


Types of Financial Types of Financial RatiosRatios

ActivityActivityActivityActivity LeverageLeverageLeverageLeverage

ProfitabilityProfitabilityProfitabilityProfitability LiquidityLiquidityLiquidityLiquidity


Profitability RatiosProfitability RatiosReturn on Sales =

Net Income

Net Sales

Return on Equity =Net Income

Total Owner’s Equity

Earnings per Share =Net Income

Average Shares Outstanding


Liquidity RatiosLiquidity RatiosWorking Capital =

Current Assets –

Current Liabilities

Current Ratio =Current Assets

Current Liabilities

Quick Ratio =Current Assets – Liabilities

Current Liabilities


Activity RatiosActivity Ratios

Inventory Turnover =Cost of Goods SoldAverage Inventory

Receivables Turnover =Sales

Average Accounts Receivable


Leverage RatiosLeverage Ratios

Debt to Equity =Total Liabilities

Total Equity

Debt to Total Assets =Total Liabilities

Total Assets


Financial ManagementFinancial ManagementDeveloping and implementing

a financial plan

Monitoring cash flow

Developing a budget

•Amount of funds•Sources of funds•Uses of funds

•Cash •Inventory•Receivables and payables

•Financial control•Capital investments•Capital budgeting

copyright © 2009 pearson education canada13-1 chapter 13 analyzing and using financialinformation

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