Assumptions
refers to an intra-company comparison
What is the consistency principle?
Operating Cash Flows
What is net income converted to the cash basis of accounting?
This is the only financial statement that does what?
rolls over from one year to the next
the order of importance of the income statement
What is third (least important)?
unique characteristic of the Boston Celtics
no income tax expense on the income statement
Celtics are treated as a partnership for tax purposes
refers to an inter-company comparison
What is the comparability principle?
Investing Cash Flows
What are cash inflows/outflows related to the acquisition/disposal of long-term assets and short-term investments in stocks and bonds?
Definition of Balance Sheet
rolling history of the financial condition of the company
the section of the income statement that is ALWAYS included
What is Income from Continuing Operations?
*this is the main focus for an analyst
small amount of inventory & PPE are unique to
What are service based companies?
states the 10-K report should be prepared from a somewhat conservative perspective, not a blind optimistic perspective
company should anticipate losses, but never anticipate gains
What is the conservatism constraints?
Financing Cash Flows
What are cash flows related to liabilities and stockholders equity?
Definition of a Current Asset
currently in the form of cash or will be in 1 year
the three sections of the income statement that COULD appear on the income statement, but are not required
What is
Income from Discontinued Operations
Extraordinary Items
Cumulative Effect of a Change in Accounting Principle
Unique expense of consumer foods companies
What are Advertising & Promotion Expenses?
company is going to continue to operate indefinitely unless questions are raised in the 10-K report
as a financial analyst, you assume that the company will continue to operate indefinitely as a going concern, unless told otherwise
What is the going concern assumption?
purpose of the statement of cash flows
What is explaining the change in funds from the first day of the year to the last day of the year?
Definition of Current Liabilities
liabilities paid off in the upcoming year or the operating cycle of business, whichever is longer
Definition of the Income Statement
statement of operating results
reporting revenues, expenses, gains and losses
accrual basis of accounting
12 month time period
dominant asset of PP&E is unique to...
from an analyst perspective, we like things listed at fair market value
this answer is very reliable, but it's not as relevant
What is the historical cost principle?
Steps to review statement of cash flows
1. trend?
2. how is the company financing the trend? (cash flows from operations, short-term debt, long-term debt, issuance of capital stock)
3. other uses of cash? (Treasury stock, dividends)
Operating Cycle of Business
the amount of time it takes to convert inventory into cash the hard way
What two conditions need to be met for the income statement to be valuable for a financial analyst?
1. the company is doing a great job of collecting their receivables from customers on a timely basis
2. the company is doing a great jobs of paying off their payables on a timely basis
two unique characteristics of technology oriented companies
1. unique expenses of Research & Development Costs
2. very small amount of long-term debt