Evaluation of Financial Reports’ Quality
In an attempt to evaluate the quality of a company’s financial reports, an analyst seeks to answer these two questions: Are the financial reports GAAP-compliant and decision-useful? Are the earnings of high quality, meaning do they provide an acceptable level…
Potential Problems Affecting the Quality of Financial Reports
Measured amounts and timing of recognition and classification are the fundamental choices that result in possible issues that distort the quality of financial statements. Measured Amounts and Timing of Recognition Since financial statements are interrelated, one choice of a measured…
Conceptual Framework for Assessing the Financial Reporting Quality
The quality of financial reports can be viewed from two interrelated perspectives: reporting quality and earnings quality. Reporting quality is concerned with the information disclosed in financial reports. High-quality reporting provides decision-useful information. In other words, it includes information that is…
Analyzing Insurance Companies
Insurance company revenues include premiums and investment income on the float. Premiums are the amounts paid by the purchaser of insurance products, while investment income on the float refers to income earned on premiums between their collection and the payment…
Analysis of a Bank Based on Financial Statements and Other Factors
From the previous learning outcomes, we learned about the relative global systemic risks across industries, the CAMELS approach for analysis of banks, and other factors not addressed under the CAMELS approach. In this section, we delve into combining the various…
The CAMELS Approach
Other Factors to Consider when Analyzing a Bank
While the CAMELS approach to evaluating a bank is reasonably comprehensive, it does not address some of the banks’ attributes. In this section, we will discuss bank attributes that are either unaddressed or not adequately addressed by a CAMELS analysis….
Financial Regulations of Financial Institutions
We mentioned in the previous learning outcome statement that financial institutions’ systemic importance results in heavy regulation of their activities. Financial regulation is a form of supervision, subjecting financial institutions to specific requirements, restrictions, and guidelines in an attempt to…
How Financial Institutions Differ from Other Companies
A financial institution is an intermediary between providers and recipients of capital or debt that provides banking, insurance, and investment services. There are various types of financial institutions consisting of banks (deposit-taking, loan-making institutions), investment banks, clearinghouses, credit card companies,…
Analyzing the Impact of Foreign Currency Fluctuations on Financial Results
So far, we have mostly analyzed a multinational parent company with only one subsidiary. It made the analysis easier as we were able to relate the effect of the translation method chosen to the consolidated financial statements for the specific…
