International Financial Statement Analysis, 3rd Edition

CHAPTER 18

INTEGRATION OF FINANCIAL STATEMENT ANALYSIS TECHNIQUES

Jack T. Ciesielski, Jr., CFA

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• demonstrate the use of a framework for the analysis of financial statements, given a particular problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating, obtaining a comprehensive picture of financial leverage, evaluating the perspectives given in management's discussion of financial results);
• identify financial reporting choices and biases that affect the quality and comparability of companies' financial statements, and explain how such biases may affect financial decisions;
• evaluate the quality of a company's financial data, and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for differences in accounting standards, methods, and assumptions;
• evaluate how a given change in accounting standards, methods, or assumptions affects financial statements and ratios;
• analyze and interpret how balance sheet modifications, earnings normalization, and cash flow statement related modifications affect a company's financial statements, financial ratios, and overall financial condition.

1. INTRODUCTION

It is important to keep in mind that financial analysis is the means to the end, and not the end itself. Rather than try to apply every possible technique and tool to every situation, it is more important ...