Non-recurring Items
When assessing a company’s possible future performance, it is advisable to separate recurring items from non-recurring items. Recurring items are items of income and expense that are likely to continue in the future, while non-recurring items are those which are…
Operating versus Non-operating Items
When assessing a company’s current or potential future financial performance, it is important to consider the effects of both operating and non-operating components of the income statement. For example, a company that may appear to be profitable based on the…
Calculation of Earnings per Share
Both IFRS and US GAAP require a company to present its earnings per share (EPS) on the face of the income statement for net profit or loss (net income) and profit or loss (income) from continuing operations. The calculation of…
Dilutive Securities and Anti-dilutive Securities
Dilutive securities and anti-dilutive securities can impact the calculation of earnings per share (EPS) in opposite ways. It is therefore very important to ascertain whether the inclusion of a financial instrument in the EPS calculation has dilutive or anti-dilutive properties….
Common-size Income Statements
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). Common-size analysis of the income statement is performed by stating each line…
Financial Analysis Using Common-size Income Statements
The balance sheet is also known as the statement of financial position or statement of financial condition. It 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,…
Comprehensive Income
‘Comprehensive income’ and ‘other comprehensive income’ are two components of the income statement that can have a material effect on the profitability of a company. It is therefore very important to understand the difference between these two items and the…
Other Comprehensive Income
Based on accounting conventions, certain items of revenue and expense are excluded from the net income calculation. These excluded items are referred to as ‘other comprehensive income.’ Under both IFRS and US GAAP, there are four types of items that…
Quality of Financial Reports and Earnings
Financial reporting quality relates to the quality of the information that is contained in financial reports, including note disclosures. High-quality reporting provides relevant, decision-useful information, which objectively represents the economic reality of a company’s activities during the reporting period. Further,…
A Spectrum for Assessing Financial Reporting Quality
When financial reporting and earnings quality are combined, the overall quality of financial reports from a user’s perspective may be viewed as spanning a continuum from the highest to the lowest point. Understand financial reporting quality levels with AnalystPrep’s Free…
