Table of Contents

Course Learning Objectives. 6

Chapter 1 Objectives of Financial Statement Analysis and Financial Reporting. 1

Learning Objectives. 1

The Focus of Financial Statement Analysis. 1

Assessment of Past Performance and Current Position. 2

Assessment of Future Potential and Related Risk. 2

Investor’s Needs. 3

Objectives of Financial Reporting. 3

Qualitative Characteristics of Accounting Information. 4

Summary. 6

Chapter 1 Review Questions. 8

Chapter 2 Accounting Assumptions, Principles, Procedures and Policies. 9

Learning Objectives. 9

Accounting Assumptions. 9

Accounting Principles. 10

Accounting Procedures and Policies. 12

Other Accounting Considerations. 13

Summary. 13

Chapter 2 Review Questions. 14

Chapter 3 Understanding Financial Statements. 16

Learning Objectives. 16

What and Why of Financial Statements. 17

Consolidated Financial Statements. 20

The Balance Sheet 20

Stockholders’ Equity. 31

The Income Statement 32

Retained Earnings Statement 36

Statement of Cash Flows. 36

Other Sections of the Annual Report 41

The Auditors’ Report 42

Notes to the Financial Statements (Footnotes). 44

Management's Discussion and Analysis (MD&A). 45

The Sarbanes-Oxley Act 47

Summary. 54

Chapter 3 Review Questions. 55

Chapter 4 An Overview of Financial Statement Analysis. 58

Learning Objectives. 58

Basic Considerations. 58

Major Tools of Analysis. 59

Sources of Information. 59

Comparative Financial Statements. 60

Ratio Analysis. 64

Cash Flow Analysis. 66

Specialized Analytical Tools. 67

Summary. 68

Chapter 4 Review Questions. 69

Chapter 5 Analysis of Liquidity and Activity. 71

Learning Objectives. 71

Liquidity Ratios. 71

Activity Ratios. 74

Operating Cycle of a Business. 80

Interrelationship of Liquidity and Activity to Earnings. 83

Other Considerations. 84

Summary. 84

Chapter 5 Review Questions. 86

Chapter 6 Analysis of Solvency and Capital Structure. 89

Learning Objectives. 89

Solvency (Leverage and Debt Service). 89

Leverage. 93

Cash Flow Ratios and Solvency. 96

Summary. 97

Chapter 6 Review Questions. 98

Chapter 7 Profitability Analysis. 100

Learning Objectives. 100

Quality of Earnings. 102

Return on Investment 103

Summary. 108

Chapter 7 Review Questions. 109

Chapter 8 Market Strength and Overall Evaluation. 110

Learning Objectives. 110

Earnings per Share. 110

Market Test Ratios. 112

Other Considerations. 118

An Overall Evaluation – Summary of Financial Ratios. 118

Summary. 120

Chapter 8 Review Questions. 124

Chapter 9 Analysis of Cash Flows. 127

Learning Objectives. 127

Preparing and Analyzing the Statement of Cash Flows. 128

Trend Analysis and Industry Comparison. 131

Cash Flow Coverage (Adequacy) Ratios. 131

Cash Flow Performance Measures. 133

Summary. 136

Chapter 9 Review Questions. 137

Chapter 10  Interim Statements and Segment Analysis. 139

Learning Objectives. 139

Interim Financial Report 139

Segment Reporting. 141

Summary. 144

Chapter 10 Review Questions. 146

Review Question Answers. 150

Glossary. 199

Index. 208

CPE Exam Answer Sheet 209

Final Examination. 211

CPASelfstudy.com Course Evaluation. 222