Swap Contracts

Since a swap involves a series of payments over a fixed period of time, it can be viewed as a series of forward contracts expiring at various times over the life of the swap contract. Series of Forward Contracts The…

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Why Forward and Futures Prices Differ

Forward and futures contracts share a number of similar features, but the way in which they are traded and the resulting cash flows mean forward and futures contracts with the same underlying asset may trade at a different price. Exchange-traded…

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Value and Price of a Forward Contract at Expiration, During the Life of the Contract, and at Initiation

This learning outcome covers how to differentiate forward price and forward value, as well as how these are affected differently during the initiation, life cycle, and expiration of the contract. It is crucial to understand the difference between forward price…

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Principles of Revenue Recognition and Accrual Accounting

Revenue is reported on the top line of the income statement. Accrual accounting allows revenue to be recognized, i.e., reported on the income statement when it is earned, and not necessarily when cash is received. Companies disclose their revenue recognition…

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Components of the Income Statement

The income statement also referred to as the “statement of earnings” or the “profit and loss” (P&L) statement provides information on the financial performance of a company over a specified period of time. It tells how much revenue the company…

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Calculate and Interpret Liquidity and Solvency Ratios

Ratio analysis can assist with the conduct of time-series and cross-sectional analysis of a company’s financial position. Balance sheet ratios are those ratios which involve balance sheet items only and include (i) liquidity ratios, which measure a company’s ability to…

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Convert Balance Sheets to Common-size Balance Sheets

Converting a company’s balance sheet into a common-size balance sheet is a very useful tool for providing insight into the company’s liquidity as well as its solvency. Common-sizing the balance sheet can assist with time-series analysis by comparing the company’s…

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Uses and Limitations of the Balance Sheet

The balance sheet can provide very useful information to users of financial statements. It, however, has several limitations to its use. Uses of the Balance Sheet The balance sheet gives insight into a company’s financial condition at a particular point…

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Assets, Liabilities, and Equity

The balance sheet, also known as the statement of financial position or statement of financial condition, is a financial statement that gives a snapshot of a company’s assets, and its sources of capital, i.e., liabilities and shareholder’s equity, at a…

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Direct and Indirect Methods – Cash from Operating Activities

Cash flow from Operating Activities may be reported in one of two presentation formats: the direct method and the indirect method. Both IFRS and US GAAP encourage the use of the direct method but will allow either method to be…

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