Common Size Income Statement
Conversion of the income statement to a common-size income statement facilitates an assessment of a company’s performance across time periods (time series analysis) and across companies (cross-sectional analysis). A common-size analysis of the income statement is performed by stating each…
Basic and Diluted EPS
Both IFRS and US GAAP mandate the presentation of earnings per share (EPS) on the income statement, specifically for net profit or loss (net income) and profit or loss (income) from continuing operations. The method of calculating EPS varies, contingent…
Non-recuring Items and Changes in Accounting Policies
When assessing a company’s possible future performance, it is advisable to separate recurring and non-recurring items. Recurring items are items of income and expense likely to continue in the future, while non-recurring items (such as discontinued operations and unusual or…
Principles of Expense Recognition
The IASB Conceptual Framework defines expenses as reductions in economic benefits occurring throughout the accounting period. These reductions manifest as outflows or depletions of assets or the incurrence of liabilities, leading to a decrease in equity. Notably, this excludes reductions…
Principles of Revenue Recognition
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…
Information Sources for Analysts
Analysts tend to base their financial statement analysis on the company’s audited, annual financial statements to get a relatively accurate picture of its financial position and performance. In this case, the annual financial statements audit must have been done by…
Alternative Financial Reporting System and Developments in Financial Reporting Standards
The goal of global convergence has been advanced by adopting IFRS in many countries outside the US as the required financial reporting standard. However, several differences exist between US GAAP and IFRS that affect how companies report their financial statement….
Importance of Regulatory Filings, Financial Statement Notes, and Supplementary Information
Regulatory Authorities Publicly traded issuers are required to prepare financial reports in accordance with specific securities laws, regulations, and accounting standards set by regulatory authorities. Since corporate reporting standards and securities regulations can vary across jurisdictions, there is a need…
Roles of Financial Statement Analysis
The primary goal of financial statement analysis is to assess a company’s past, present, and potential future performance and financial condition. This involves using the company’s financial reports, along with other relevant information, to make informed investment, credit, and other…
Financial Statement Analysis Phases
Financial analysis is the process of interpreting and evaluating a company’s performance and position in the context of its economic environment. Analysts use financial analysis to make investment decisions and recommendations. As a generic term, the financial statement analysis framework…
