CFA FRA

Rev, Exp, G & L

• CFO - cash from normal business
• CFI - acq/sale of property, P&E, subsidiary, stakes in other firms
• CFF - issuance/retirement of debt and equity, dvis paid to stockholders
• Total CF = CFO + CFI + CFF (change in cash on BS)

• more info on fin statements
• improve assessment on estimates used (fixed assets, inv, pensions, debt, commitments, mark securs, etc)
• accounting methods and assumptions
• are also part of the audit process (unlike supp)
• disclosures such as RE losses

• additional info such as
• sales by region
• reserves for oil company
• info on hedging activites and financial instruments used

• Assessment of financial position and performance from management POV. US public companies required to speak of
• trends, events, uncertainties
• inflation/pricing
• off-balance sheet and contractual obligations
• accounting policies that require judgement
• foward looking expend and divestitures

• fairness and reliability
• unqual, qual, adverse, disclaimer of opinion
• GAAP opinion on internal controls

• EDGAR
• 8K events, 10K annual, 10Q quarterly

• State Objective
• Gather Data
• Process Data
• Analyze and Interpret
• Report Conclusions
• Update Analysis

• L
• A
• A

contributed capital + ending retained earnings (begin retained + rev - exp - div)

Accrual Accounting, 4 cats

• Most assets on BS at historical cost
• valuation adjustments = change in OE through G&L on IS or CIS

• FASB (GAAP) and IASB (IFRS)
• SEC in US and FSA in UK (most belong to IOSCO)

• disagreement between standard setters
• political pressures on regulators

Fair presentation of a company's financial performance (useful to investors, lenders, creditors)

• relevance (comparability, verifiability, timeliness, understandability)
• faithful representation (complete, unbiased, free from error)

• accrual basis (rev recognised when earned, exp when incurred REGARDLESS of cash)
• going concern

• features for prepparing financial statements
• fair presentation
• going concern basis
• accrual basis
• consistency
• materiality (no errors)
• aggregation (of sim items)
• no offsetting (unless permitted)
• Report freq (at least annually)
• Comparative Information (inc from prior periods)
• Classified Balance Sheet

• transparent
• comprehensive
• sonsistent

• Valuation (relevance vs reliability)
• Standard Setting (rules based (GAAP), objective orientated, principles based (IFRS))
• Measurement

• Rev - COGS
• Gross Prof - opex
• operating prof - IT
• Net Profit

n.b. opex includes DA

• when earned and incurred
• probable flow
• reliably measured
• delivered/rendered
• price

• % of completion (IFRS says if unreliable, only recognise rev to extent of costs and profit at completion)
• completed contract (not reliabily measured or short term, rev, exp, proft only recognised at completion)

• When sells something and receives payments in instalments.
• Collectability?
• Certain - rev at time of sale
• unsure - installment method (proportional)
• highly uncertain - cost recovery (profit only after cost)

• Rev and Exp same period
• period costs ie admin exp in period not against rev
• Rev from long lived assets : Exp D / A
• Matching principle requires estimates which can allow delay of expense recognition to bloat NI

• SL = cost - residual / useful life
• DDB = 2/useful life * asset cost - accum dep

More dep exp = lower NI

• Goodwill and intangibles with indefinite lives are NOT amortized.
• Test for impairment annually (possible expense in IS)

Cont Op (inc Unusual or Infreq ie G/L from non disc op, impairments, write-offs, write-downs, restrucuring costs)

Disc Op - physically and operationally distinct

Extraord (GAAP only)

• principle = retrospective
• estimate = prospectively
• prior period adjustment = fixing an error

• NI - pref div + debt intere(1-t) + conv pref divs
• _________
• weighted shares + shares from conv of pref/debt/options

both over revenue

• FX G/L
• Adjustments for min pension liability
• Unrealised G/L cash flow hedging
• Unrealised G/L available-4-sale securities

Divs paid + Issuing or reacquiring stock are not in IS or CIS

current ass - current liab

• long-term assets with physical substance.
• land is not depreciated

• Goodwill - no amort
• reported at hist cost less accum amort
• IFRS - expense up to research, capitalise development on
• GAAP - expensed but for certain legal costs

• amort cost
• fair value (unreal G&L recog in IS)
• fair value (only in CIS in stockholder eq)

• A-L
• BS includes 
• contributed capital
• noncontrolling itnerest
• retained earnings
• treasury stock (no voting or divs)
• accumulated other comp income (changes in stockholders eq not recognised in the IS)

• LT debt to equity
• debt to equity
• total debt ratio (debt/assets)
• financial leverage (total assets/equity)

• CFO outflows - opex, trading sec, int, taxes
• inflows - sales, int & div (IFRS CFO CFI), sales from trading sec

• CFI outflows - acq of fixed assets, debt eq sec, loans made
• inflows - sales proceeds and principal received

• CFF outflows - divs paid (IFRS CFO CFF), repayment of loan, reacquire stock, 
• inflows - loans, equity capital

noncash / barter can be footnoted or supp sched

(NI/EBT)(EBT/EBIT)(EBIT/rev)(rev/assets)(assets/equity)

tax burden, interest burden, EBIT margin, asset turnover, financial leverage.