Gaodun slides FSA

http://finance.gaodun.cn Introduction of the course S Financial Statement Analysis Weight: 15%~20% SS5: Intercorporate Investments, Post-Employment and ShareBased Compensation, and Multinational Operations SS6: Earnings Quality Issues and Financial Ratio Analysis S S E P S S A S E S S S S C S S E S S S F R A F I F S S S S Q I D S A S P I M W P W Summary Ø E • 17 • Session Investments in Financial Assets Session Case T Ø D I Ø D F IFRS R US GAAP S IFRS http://finance.gaodun.cn Intercorporate Investments Categorization of Investment D Ø I F • I • I • B • J D A A N C B S C T T T NA • • • A U HTM AFS F A S A E P L Financial Assets Financial Assets H D Ø H Ø T • Ø I HTM • A • F Ø GAAP AFS PL IFRS J S V Ø P H V IFRS • IFRS • US GAAP Ø H • A US GAAP NA E http://finance.gaodun.cn Financial Assets Financial Assets F Ø H E • S • R • B A D Ø N Ø A Ø R Ø D • D • T Ø U OCI Ø A • N Available for Sale Securities Example F A Ø D • US GAAP A • IFRS T T OCI ü R D ü R OCI Ø E • R B OCI US GAAP IFRS BS IS http://finance.gaodun.cn Example Example H F ØT ØT ØA ØA × I × ØA I ØT B Example Reclassification of Financial Asset A IFRS Ø IFRS ØT Ø R ØA × IFRS I Ø D ØT OCI Ø H http://finance.gaodun.cn Reclassification of Financial Asset Summary U S GAAP F Ø U S GAAP T F Ø F A H Ø T A A H F Impairment of Financial Asset Impairment of Financial Asset B U U S GAAP IFRS IFRS R F H A Ø U S GAAP U R G I IFRS I IFRS O A OCI T R OCI IFRS U S GAAP Ø A F Ø I Ø A L http://finance.gaodun.cn Impairment of Financial Asset Impairment of Financial Asset U U IFRS IFRS HTM Ø I Ø I • I PV ü A • L • I Ø R • I Impairment of Financial Asset Impairment of Financial Asset U U IFRS AFS Ø I • I ü S PV IFRS AFS Ø I • C ü C ü A OCI A http://finance.gaodun.cn Impairment of Financial Asset IFRS (New Standards) U IFRS IFRS AFS Ø R • D E S Ø IFRS I I ü R • N IS C IS • A • F • F FVPL FVOCI IFRS (New Standards) IFRS (New Standards) IFRS IFRS N Ø A S D • B • C N S Ø FVPL D D T • D • E E H H FVPL O FVPL Ø FVOCI E • S FVOCI http://finance.gaodun.cn Summary of IFRS Summary Ø I Ø C • I • F • R • I Ø E • GAAP Definition of Associates D Investment in Associates A Ø W T Ø D I I Ø D F R S IFRS A IFRS US GAAP I A • R • P • M • I • T IFRS http://finance.gaodun.cn Example Equity Method E M A E Ø T M A Ø D X C A C I • • D X C B B C D C A X IS • O Example E M Equity Method A A × Ø R I IS C B × C C A A BS X B E B • F • G N Ø T B C • T B Ø I Ø R C Ø A IS B C • N V I http://finance.gaodun.cn Equity Method I C Example T E B V I I C T E B Ø A G V I AC C B N B O B B T B A Example Q Ø G B Example A C Q P F P B B C C A C Ø E A P B A FV BV B Ø E E • E B http://finance.gaodun.cn Tax Implications of Multinational Operations Revenue Growth Issue and Foreign Exchange Risks E R Ø A Ø C F • C • C Ø D Summary Ø I Evaluate the Earnings and Reporting Quality Ø C • ü C R M VS O ü C R M VS T • ü N • Ø E • M T Ø D Ø D Ø E http://finance.gaodun.cn Quality of financial reports Potential problems that affect the quality of financial reports Q P Ø T Ø M • E • R A Ø C N Q Ø M Ø R F Ø H G Ø A Evaluate the quality of a company's financial report Evaluate the quality of a company's financial report S S Ø S U Ø S U Ø S C Ø S F Ø S U A Ø S I Ø S M N http://finance.gaodun.cn Quantitative tools Indicators of earnings quality B Ø B H Ø S Ø M • Ø A L B M R L A Ø A • Ø E L T B J Ø E Ø P Sustainable earnings Mean Reversion Ø S M • Ø M S E Ø E • • A • A E A Ø E • E C A N E • W M http://finance.gaodun.cn Evaluating the Earnings Quality of a Company Indicators of Cash Flow Quality T I Ø R • S U • S E • S C • S C • S E • S C • S U • S T • S C C F Q Ø H CFO Ø F CFO S Ø E Evaluate The Cash Flow Quality Indicators of Balance Sheet Quality E H ØC Ø C ØC ØC Ø C • W BS ü S CFO http://finance.gaodun.cn Indicators of Balance Sheet Quality Sources of Information About Risky Ø U T M T Ø F • V • V Ø A Ø N • G • I • I Ø M D A MD A Ø SEC F Ø F PP E Summary Ø I Framework for Financial Analysis Ø C • ü E ü R • Ø E • T Ø D Ø E http://finance.gaodun.cn Framework for Analysis of Financial Statement Framework for Analysis of Financial Statement F F A D Ø A D Ø I • A • N • I • P • N • T I O • F • C O • O Framework for Analysis of Financial Statement Framework for Analysis of Financial Statement F F A P Ø I A A Ø I • D O • D O • A • C • R • F • R http://finance.gaodun.cn Framework for Analysis of Financial Statement Framework for Analysis of Financial Statement F F A D Ø A F Ø I I • A • I • O O • • R • R P U How to Analyze Identify Financial Reporting Choices and Biases T E ØE Ø R ROE ØA ØC ØC ØE ØM ØO ØA D P T B I B EBIT M A T F L http://finance.gaodun.cn Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases E E ØD ØA • R D P E M A $in millions 2015 2014 2013 Revenue $52,000 $48,300 EBIT 7,250 6,500 EBT 6,600 5,900 Equity income* 900 700 Net income 5,570 4,800 Total asset $56,200 $49,900 $50,300 Equity investment 4,400 4,100 3,500 Stockholders’ equity 26,600 25,900 24,000 (* not included in EBT) Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases E E E M A As reported 2015 2014 Tax burden 84.4% 81.4% X interest burden 91.0% 90.8% X EBIT margin 13.9% 13.5% =net profit margin 10.7% 10.0% X total asset turnover 0.98 0.96 X financial leverage 2.0 2.0 =ROE 21.0% 19.2% E M A http://finance.gaodun.cn Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases E A E M A ØE • P • N Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases C C Ø T Ø C Ø F Ø L Ø S • R • T • S http://finance.gaodun.cn Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases S S Revenue S 2015 A $270 Total Assets EBIT 2014 20% $220 2015 20% $60 29% $50 2015 27% A $370 36% $170 21% $10 15% $9 17% 500 49% 490 60% 35 54% 30 56% 160 15% 150 19% 20 31% 15 28% B 870 66% 820 66% 130 63% 120 65% B C 180 14% 170 14% 15 7% 15 8% C $1,320 Ø S $1,210 B $205 2014 $1,030 $185 EBIT C Capital Expenditures S 2014 $810 Ø S B Ø S C Ø S A 2015 $65 2014 $54 Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases S S Ø I EBIT Margin F Ø I F 2015 2014 2015 2014 A 22% 23% 0.42 0.81 B 15% 15% 1.10 0.93 C 8% 9% 2.07 1.47 Ø C Ø C Ø I CapEx%/Assets% S EBIT http://finance.gaodun.cn Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases E A Ø E Ø B • A BS NOA END NOA BEG • A Ø E NOA END NOA BEG BS • N • B • C ü NOA Ø M NOA END NOA BEG NOA T C M T T Ø C • A • A CF NI CFO CFI CF NI CFO CFI NOA END NOA BEG Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases C M Ø A Ø T • B • T • O • I Ø C • C CFO A • C CFO C • C • C CFO • M T CFO C P http://finance.gaodun.cn Identify Financial Reporting Choices and Biases Identify Financial Reporting Choices and Biases M M Ø T T PE C E I N C P Market capitalization Net income $1.60 Summary E T ( E X X $49,800 T E Ø C • • D P • A ü B ü C T S ( E $4,520 I A T T PE PE ( ( X X 1,000 Average FX rate ($/ ) Ø I T 20,000 $5,000 $1.70 Identify Financial Reporting Choices and Biases • C • M Ø E • Eagle $60,000 Current FX rate ($/ ) I I UK Thunderbird Ø I S US http://finance.gaodun.cn Evaluate the quality of a company's financial data O B The Quality of Financial Data S F Ø O OBS VS C • F T Ø • A C A • R Ø O OBS Evaluate the quality of a company's financial data Evaluate the quality of a company's financial data L L T T PV T Ø R D E I A T T T D A EBIT $2 million B R ( D PV SH E SH E I Ø A DE EBIT I A EBIT E I PMT E Y X http://finance.gaodun.cn Anticipating Changing Accounting standard Ratio analysis C R Ø B Ø I Ø O E Ø R • FASB Ø G Ø E • T Review of DuPont Analysis D P S E Review of Inventory analysis E I S LIFO I COGS L COGS L EBIT H EBIT L T H T L H H L B H L C FIFO H H L CFO L M CFO http://finance.gaodun.cn Review of Inventory analysis Review of Long-lived asset analysis I C R LIFO FIFO L P E S I B S H L L S H H DA DE L H A DA N DE I S L A E L S H S ROA ROE H L L H S S CFO H L CFI L H • ü O B S ü C ü R Ø E M L ROA ROE L H Ø C A DTA DA D E Ø I E L S H T L D L L I L Summary C C H N C Conservative & Aggressive Accounting T N R E H L R C T DTA • 17 ... http://finance .gaodun. cn Example Example H F ØT ØT ØA ØA × I × ØA I ØT B Example Reclassification of Financial Asset A IFRS Ø IFRS ØT Ø R ØA × IFRS I Ø D ØT OCI Ø H http://finance .gaodun. cn Reclassification... http://finance .gaodun. cn Equity Method I C Example T E B V I I C T E B Ø A G V I AC C B N B O B B T B A Example Q Ø G B Example A C Q P F P B B C C A C Ø E A P B A FV BV B Ø E E • E B http://finance .gaodun. cn... http://finance .gaodun. cn ( DC Plan P T DB Plan E E P T E O P L E R D O B DC S DB S M T N Summary Ø I Accounting for DB Plan Ø C • P P T ü DC P Ø E ü DB P ü O Ø D Ø E • DB Plan http://finance .gaodun. cn