Rising inventory costs (inflation) or declining inventory costs (deflation) can significantly impact a company’s financial statements, depending on the inventory valuation method used. Differences in the selected valuation method can affect companies’ comparability when doing financial ratio analysis. The Effect…

Under IFRS, inventories may be measured and carried on the balance sheet at a lower cost and net realizable value. US GAAP, on the other hand, specifies the lower cost or market value inventories. Market value is the current replacement…

The cash flow statement can compute financial ratios used to measure a company’s profitability, performance, and financial strength. Other cash flow measures, such as free cash flow to the firm and free cash flow to equity, can also be instrumental…

Users of financial statements can obtain helpful information about a company by analyzing its cash flow statement. This can help them understand the company’s business and earnings and predict its future cash flows. The common-size analysis of the cash flow…

Several differences exist between how the cash flow statement is prepared under IFRS and US GAAP. The most significant difference is that IFRS gives companies more flexibility regarding how interest is paid or received, how dividends paid or received are…

Sometimes, a company may prepare the cash flow from the operations section of its cash flow statement using an indirect method. However, users of its financial statements may desire to review the direct-format cash flow from operations. This may arise…

The first step in preparing the cash flow statement involves the determination of the total cash flows from operating activities. The cash flow from the operations section of the cash flow statement can be presented using either the direct or…

Financial statements are interconnected, each serving a unique function in providing detailed information about a company’s financial activities. The four primary financial statements are: The four primary financial statements are interconnected, each serving a unique function in providing detailed information…

Examining a company’s balance sheet can reveal information about its liquidity and solvency at the time the balance sheet is prepared, as well as the economic resources under the company’s control. Recall that liquidity is defined as the company’s ability…

Non-current liabilities refer to all liabilities that are not classified as current. Common types of non-current liabilities are long-term financial liabilities and deferred tax liabilities. Long-Term Financial Liabilities Common types of long-term financial liabilities are bank loans and fixed-income securities…