Implementing Accounting Analysis

1
Chapter 4

• Implementing Accounting Analysis

2
Introduction

• (p. 4-1) Once the financial statements have been
  standardized, the analyst is ready to identify
  any distortions in the F/S.
• The primary focus s/b on those accounting
  estimates and methods that the firm uses to
  measure its key success factors and risks
  (results of biz strategy analysis).

3
Recasting Financial Statements

• Sample template on pages 4-2 4-4.

4
Asset Distortions

• Assets Defined Resources that a firm owns or
  controls which are expected to produce future
  economic benefits that can be measured with a
  reasonable degree of certainty.

5
Overstated Assets

• Asset overstatements are likely when managers
  have incentives to increase reported earnings.
• Addl examples
• Not expensing non-salable inventory.
• Capitalizing repairs and maintenance as Capital
  Improvements.