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HHIF Lecture Series: Financial Statement Analysis

HHIF Lecture Series: Financial Statement Analysis

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Published by alexanderrem

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Categories:Business/Law, Finance
Published by: alexanderrem on Nov 21, 2010
Copyright:Attribution Non-commercial

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05/20/2011

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HHIF Lecture Series
:Financial Statement Analysis
Alexander Remorov
Based on the Materials by Daanish Afzal 
University of Toronto
November 5, 2010
Alexander Remorov, Daanish Afzal (University of Toronto)
 
Financial Statements
Provide an overview of the company’s financial activities
Allow investors and managers to make decisions about the company
Similar companies must use the same rules for creating financial state-ments, e.g. GAAP
But sometimes following the rules does not mean the numbers are right
Released on a quarterly and annual basis; freely available for publiclytraded companiesContain information about the company’s earnings, costs, assets andliabilities, cash, and capital structure
Used to compare historically and among competitors
Look at
financial ratios 
, e.g. debt/equity, price/equity, etc.
Most
objective 
analysis is based on the numbers in financialstatements
Contrast with
subjective 
analysis, based on opinion
”Company’s XYZ Gross Profit Margin is 30%” vs”Company XYZ is efficient”
Alexander Remorov, Daanish Afzal (University of Toronto)
 
Some Terminology
Accounting Term DefinitionRevenue
Income received from normal business activities
e.g. money made from a sale 
Expense
Outflow of cash or non-cash asset to another entity
e.g. rent, interest on debt 
Asset
An economic resource owned by a company;can produce value,
e.g. cash, factory, equipment 
Liability
An obligation of cash or other assets due to pasttransactions,
e.g. bank loan
Shareholders’Equity
Amount of money contributed by owners plus themoney reinvested in the business
Cash Flow
Movement of cash into or out of the company
e.g. Cash from a sale (cash inflow)
Cost of GoodsSold
Direct costs associated with the production of goods sold; includes cost of materials and laborused to produce the goods
Alexander Remorov, Daanish Afzal (University of Toronto)

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