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International Financial Statement Analysis, 3rd Edition

Book Description

Better analysis for more accurate international financial valuation

International Financial Statement Analysis provides the most up-to-date detail for the successful assessment of company performance and financial position regardless of country of origin. The seasoned experts at the CFA Institute offer readers a rich, clear reference, covering all aspects from financial reporting mechanics and standards to understanding income and balance sheets. Comprehensive guidance toward effective analysis techniques helps readers make real-world use of the knowledge presented, with this new third edition containing the most current standards and methods for the post-crisis world. Coverage includes the complete statement analysis process, plus information on income tax accounting, employee compensation, and the impact of foreign exchange rates on the statements of multinational corporations.

Financial statement analysis gives investment professionals important insights into the true financial condition of a company. With it, realistic valuations can be made for investment, lending, or merger and acquisition purposes. The process is becoming increasingly complex, but this book helps readers deal with the practical challenges that arise at the international level.

  • Understand the accounting mechanics behind financial reporting

  • Discover the differences between statements from around the world

  • Learn how each financial statement element affects securities valuation

  • Master analysis for clues into operations and risk characteristics

  • Amid an uncertain global economic climate, in today's volatile international markets, the ability to effectively evaluate financial statements is a critical skill. Standards and conditions are continuously evolving, and investment professionals need a strong, up-to-date resource for the latest rules and best practices. International Financial Statement Analysis provides this and more, with clarity and expert advice.

    Table of Contents

    1. Cover Page
    2. Title Page
    3. Copyright
    4. Foreword
    5. Preface
    6. Acknowledgments
    7. About the CFA Investment Series
    8. CHAPTER 1 Financial Statement Analysis: An Introduction
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Scope of Financial Statement Analysis
      4. 3. Major Financial Statements and Other Information Sources
      5. 4. Financial Statement Analysis Framework
      6. 5. Summary
      7. References
      8. Problems
    9. CHAPTER 2 Financial Reporting Mechanics
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. The Classification of Business Activities
      4. 3. Accounts and Financial Statements
      5. 4. The Accounting Process
      6. 5. Accruals and Valuation Adjustments
      7. 6. Accounting Systems
      8. 7. Using Financial Statements in Security Analysis
      9. 8. Summary
      10. Appendix 2: A Debit/Credit Accounting System
      11. Problems
    10. CHAPTER 3 Financial Reporting Standards
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. The Objective of Financial Reporting
      4. 3. Standard-Setting Bodies and Regulatory Authorities
      5. 4. Convergence of Global Financial Reporting Standards
      6. 5. The International Financial Reporting Standards Framework
      7. 6. Effective Financial Reporting
      8. 7. Comparison of IFRS with Alternative Reporting Systems
      9. 8. Monitoring Developments in Financial Reporting Standards
      10. 9. Summary
      11. Problems
    11. CHAPTER 4 Understanding Income Statements
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Components and Format of the Income Statement
      4. 3. Revenue Recognition
      5. 4. Expense Recognition
      6. 5. Non-Recurring Items and Non-Operating Items
      7. 6. Earnings per Share
      8. 7. Analysis of the Income Statement
      9. 8. Comprehensive Income
      10. 9. Summary
      11. Problems
    12. CHAPTER 5 Understanding Balance Sheets
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Components and Format of the Balance Sheet
      4. 3. Current Assets and Current Liabilities
      5. 4. Non-Current Assets
      6. 5. Non-Current Liabilities
      7. 6. Equity
      8. 7. Analysis of the Balance Sheet
      9. 8. Summary
      10. Problems
    13. CHAPTER 6 Understanding Cash Flow Statements
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Components and Format of the Cash Flow Statement
      4. 3. The Cash Flow Statement: Linkages and Preparation
      5. 4. Cash Flow Statement Analysis
      6. 5. Summary
      7. Reference
      8. Problems
    14. CHAPTER 7 Financial Analysis Techniques
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. The Financial Analysis Process
      4. 3. Analytical Tools and Techniques
      5. 4. Common Ratios Used in Financial Analysis
      6. 5. Equity Analysis
      7. 6. Credit Analysis
      8. 7. Business and Geographic Segments
      9. 8. Model Building and Forecasting
      10. 9. Summary
      11. References
      12. Problems
    15. CHAPTER 8 Inventories
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Cost of Inventories
      4. 3. Inventory Valuation Methods
      5. 4. The LIFO Method
      6. 5. Inventory Method Changes
      7. 6. Inventory Adjustments
      8. 7. Evaluation of Inventory Management
      9. 8. Summary
      10. Problems
    16. CHAPTER 9 Long-Lived Assets
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Acquisition of Long-Lived Assets
      4. 3. Depreciation and Amortization of Long-Lived Assets
      5. 4. The Revaluation Model
      6. 5. Impairment of Assets
      7. 6. Derecognition
      8. 7. Presentation and Disclosures
      9. 8. Investment Property
      10. 9. Leasing
      11. 10. Summary
      12. Problems
    17. CHAPTER 10 Non-Current (Long-Term) Liabilities
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Bonds Payable
      4. 3. Leases
      5. 4. Introduction to Pensions and Other Post-Employment Benefits
      6. 5. Evaluating Solvency: Leverage and Coverage Ratios
      7. 6. Summary
      8. Problems
    18. CHAPTER 11 Financial Reporting Quality
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Conceptual Overview
      4. 3. Context for Assessing Financial Reporting Quality
      5. 4. Detection of Financial Reporting Quality Issues
      6. 5. Conclusion
      7. Problems
      8. References
    19. CHAPTER 12 Financial Statement Analysis: Applications
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Application: Evaluating Past Financial Performance
      4. 3. Application: Projecting Future Financial Performance
      5. 4. Application: Assessing Credit Risk
      6. 5. Application: Screening for Potential Equity Investments
      7. 6. Analyst Adjustments to Reported Financials
      8. 7. Summary
      9. References
      10. Problems
    20. CHAPTER 13 Income Taxes
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Differences between Accounting Profit and Taxable Income
      4. 3. Determining the Tax Base of Assets and Liabilities
      5. 4. Temporary and Permanent Differences Between Taxable and Accounting Profit
      6. 5. Unused Tax Losses and Tax Credits
      7. 6. Recognition and Measurement of Current and Deferred Tax
      8. 7. Presentation and Disclosure
      9. 8. Comparison of IFRS and US GAAP
      10. 9. Summary
      11. Problems
    21. CHAPTER 14 Employee Compensation: Post-Employment and Share-Based
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Pensions and Other Post-Employment Benefits
      4. 3. Share-Based Compensation
      5. 4. Summary
      6. Reference
      7. Problems
    22. CHAPTER 15 Intercorporate Investments
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Basic Corporate Investment Categories
      4. 3. Investments in Financial Assets: Standard IAS 39 (as of December 2012)
      5. 4. Investments in Financial Assets: IFRS 9 (as of December 2012)
      6. 5. Investments in Associates and Joint Ventures
      7. 6. Business Combinations
      8. 7. Summary
      9. Problems
    23. CHAPTER 16 Multinational Operations
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Foreign Currency Transactions
      4. 3. Translation of Foreign Currency Financial Statements
      5. 4. Multinational Operations and a Company's Effective Tax Rate
      6. 5. Additional Disclosures on the Effects of Foreign Currency
      7. 6. Summary
      8. Problems
    24. CHAPTER 17 Evaluating Quality of Financial Reports
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Quality of Financial Reports
      4. 3. Evaluating the Quality of Financial Reports
      5. 4. Earnings Quality
      6. 5. Cash Flow Quality
      7. 6. Balance Sheet Quality
      8. 7. Sources of Information about Risk
      9. 8. Conclusion
      10. References
      11. Problems
    25. CHAPTER 18 Integration of Financial Statement Analysis Techniques
      1. Learning Outcomes
      2. 1. Introduction
      3. 2. Case Study 1: Long-Term Equity Investment
      4. 3. Case Study 2: Off-Balance Sheet Leverage from Operating Leases
      5. 4. Case Study 3: Anticipating Effects of Changes in Accounting Standards
      6. 5. Summary
      7. Problems
    26. Glossary
    27. About the Authors