Saturday, January 28, 2006

Fundamentals of Investments



iNFO: Fundamentals of Investments was written to: 1. Focus on students as investment managers, giving them information they can act on instead of concentrating on theories and research without the proper context. 2. Offer strong, consistent pedagogy, including a balanced, unified treatment of the main types of financial investments as mirrored in the investment world. 3. Organize topics in a way that makes them easy to apply--whether to a portfolio simulation or to real life--and support these topics with hands-on activities. The approach of this text reflects two central ideas. First, there is a consistent focus on the student as an individual investor or investments manager. Second, a consistent, unified treatment of the four basic types of financial instruments--stocks, bonds, options, and futures--focusing on their characteristics and features, their risks and returns, and the markets in which they trade.

Book : http://rapidshare.de/files/2710051/FundInvest.rar.html
A Solutions Manual: http://www.missouri.edu/~fincc/Solutions.pdf
PowerPoint slides for all chapters: http://www.uky.edu/~bjordan/BDJWeb/Fin450/invest.html

Saturday, January 14, 2006

ESSENTIALS of Financial Analysis




Title : ESSENTIALS of Financial Analysis
Authors: George T. Friedlob and Lydia L.F. Schleifer

Contents
Preface
1 Understanding Financial Statements and Annual Reports
2 Analyzing Profitability
3 Analyzing Liquidity and Solvency
4 Analyzing Activity with Financial and Non-financial Measures
5 Quality of Earnings and Cash Flows
6 Earnings Releases and EVA Analysis
7 E-Business

Click on the Cover or Title to download the book in PDF.


Preface

The financial analysis of companies is usually undertaken so that investors, creditors, and other stakeholders can make decisions about those companies.The focus of this book is on the financial analysis of companies that are publicly traded and therefore make public the data and information needed by stakeholders, who can then use the analytical procedures included in this book.

The primary objectives in this book are to
• Provide an overview of financial statements and where and how to obtain them.
• Explain how to use the information provided in annual reports and Securities and Exchange Commission (SEC) filings, to examine a company’s profitability, liquidity, and solvency.
• Examine various techniques for evaluating the market value of companies based on their financial reports and stock prices.
• Discuss issues related to the quality of earnings and financial reporting.
• Describe several ways of examining the cash flows of companies.
• Describe new developments in areas like pro forma reporting, economic value added (EVA), and discounted cash flow methods.

Chapter 1 starts by looking briefly at how accounting for resources began. Then, an example of a set of financial statements (for Coca-Cola Company) is included and their content explained. Following that is a comparison of cash-basis and accrual-basis accounting.

Chapter 2 looks at profitability from many angles. Profits are reported on the income statement, so we start with a look at the categories of earnings on the income statement. The chapter discusses operating income and comprehensive income and where to find that information. Because revenue recognition is so much in the spotlight lately, the basics of that principle are discussed. Four of the main analytical
techniques used by financial analysts are included: return on assets (ROA), return on equity (ROE), earnings per share (EPS), and the price/earnings (P/E) ratio.

Chapter 3 examines the concepts of liquidity and solvency and how to evaluate those attributes for a company. The primary focus is on the balance sheet. However, also included are some cash flow adequacy ratios, since lack of cash flow can force companies to declare bankruptcy. The chapter discusses how leverage can affect a company. Also included is a discussion of the auditor’s decision process when evaluating going concern status. Finally, we include a demonstration of the use of Altman’s Z score.

Chapter 4 examines the activity, effectiveness, and productivity measures that can be used to evaluate companies. The chapter discusses several turnover ratios, like accounts receivable and inventory turnover. It also discusses a method of analyzing capacity usage and how to calculate operating leverage and examine its impact on profitability.

Chapter 5 discusses the issue of quality of earnings and how certain aspects of financial reporting enhance or detract from that quality. Because quality is related to how predictive of cash flows the information is, the chapter also includes several cash flow ratios and what information they provide. Common-size cash flow statements take the cash flow analysis one step further. Common-size income statements and balance sheets are also included.

Chapters 6 and 7 discuss relatively recent developments in financial analysis. Chapter 6 includes pro forma reporting and EVA. Chapter 7 discusses e-business and includes several methods for analyzing the value of Internet businesses. As more and more people make the decision to control their own investment decisions, the need for explanations of financial analysis tools becomes greater. The intent of this book is to provide helpful explanatory information to financial statement users and company stakeholders of all sorts. If you are one of these stakeholders, we hope that this book will help you to make good decisions regarding the businesses in which you have or want to have a stake.

Tuesday, January 03, 2006

IAS 10: Events after the balance sheet date

IAS 10, Events after the balance sheet date
by Neil D Stein


Professional Scheme
Relevant to Paper 1.1, Paper 2.5, Paper 2.6

The International Accounting Standards Committee (IASC) issued a revised IAS 10, Events After the Balance Sheet Date, in May 1999. The original IAS 10 dealt with contingencies as well as events after the balance sheet date. IAS 37, Provisions, Contingent Liabilities and Contingent Assets, replaced the sections of IAS 10 covering contingencies. IAS 10 (Revised) now updates the remainder of the original IAS 10. The date of issue of IAS 10 (Revised) means that it is examinable in papers 1, 6, 10 and 13 (International) from December 1999.

Events after the balance sheet explained

Events after the balance sheet date and before financial statements are issued can have important effects on the financial statements. For example, the bankruptcy of a major customer would normally be evidence that the trade receivable should be written off or an allowance made as at the balance sheet date.

There is another type of event after the balance sheet date — one that does not affect the position at the balance sheet date, but which still needs disclosure in some way to prevent users being misled. An example of such an event might be a material fall in the market value of investments.

General provisions

Events after the balance sheet date are divided into two types, corresponding to the two examples just given. The definition in IAS 10 is:


Events after the balance sheet date are those events, both favourable and unfavourable, that occur between the balance sheet date and the date when the financial statements are authorised for issue.

Two types of events can be identified:

(a) those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); and

(b) those that are indicative of conditions that arose after the balance sheet date (nonadjusting events after the balance sheet date).

Material adjusting events require changes to the financial statements.

Examples of such events given in IAS 10 (Revised) are:

(a) the resolution of a court case, as the result of which a provision has to be recognised instead of the disclosure by note of a contingent liability;

(b) evidence of impairment of assets:

    (i) bankruptcy of a major customer;

    (ii) sale of inventories at prices

suggesting the need to reduce the balance sheet figure to the net value actually realised.

Nonadjusting events do not, by definition, require an adjustment to the financial statements, but if they are of such importance that non-disclosure would affect the ability of users of the financial statements to make proper evaluations and decisions, the enterprise should disclose by note:

— the nature of the event;

— an estimate of its financial effect, or a statement that such an estimate cannot be made.

Examples of such events given in IAS 10 (Revised) are: (Items (a) to (e) only are relevant for paper 1).

(a) decline in market value of investments;

(b) announcement of a plan to discontinue part of the enterprise;

(c) major purchases and sales of assets;

(d) expropriation of assets by government;

(e) destruction of a major asset by fire etc;

(f) a major business combination after the balance sheet date;

(g) sale of a major subsidiary;

(h) major dealings in the company's ordinary shares;

(i) abnormally large changes in asset prices or foreign exchange rates;

(j) changes in tax rates with a significant effect on current and deferred tax assets;

(k) entering into significant commitments or contingent liabilities;

(l) commencing major litigation arising solely out of events after the balance sheet date.

Further provisions of IAS 10 (Revised)

(a) Authorisation for issue of financial statements

An enterprise should disclose the date when the financial statements were authorised for issue and who gave that authorisation. If the owners or others have the power to amend the financial statements after issue, that fact should be disclosed.

(b)

Going concern

If the management decides after the balance sheet date that it is necessary to liquidate the enterprise, the financial statements should not be prepared on a going concern basis.

(There was a provision in `old' IAS 10 that the financial statements should be adjusted if events after the balance sheet date showed that a part of the enterprise was no longer a going concern. This requirement is withdrawn in `new' IAS 10 on the grounds that under IAS 1, Presentation of Financial Statements, the going concern assumption applies to an enterprise as a whole.)

(c)

Dividends

The big change in `new' IAS 10 is that proposed dividends may no longer be recognised as liabilities if, as will normally be the case, they are proposed or declared after the balance sheet date.

IAS 1, Presentation of Financial Statements, requires the disclosure of proposed dividends and IAS 10 states that this disclosure may be given in one of two ways:

(a) by note;

(b) on the face of the balance sheet as a separate component of equity.

For examination purposes the disclosure by note will be simpler, unless the question specifies the use of the other method.

Conclusion

The requirements of IAS 10 (Revised) are broadly the same as the previous version with the important exception of those for proposed dividends, which are now to be treated as in the USA. (Under the original IAS 10, there was an option to recognise them as liabilities, which has now gone).