Taroy, Winelin N.

BSBA 3B FM OS
Occ.taroy.winelin@gmail.com

Identification:
1. Debt securities
2. Equity securities
3. Fair value
4. Hedge
5. Derivative
6. Economic income
7. Permanent income
8. Revenue
9. Gains
10. Expenses
11. Losses
12. Net income
13. Special items
14. Product financing arrangements
15. Deferred charges
16. Cash
17. Cash flow adequacy ratio
18. Cash reinvestment ratio
19. Return on invested capital
20. Return on common equity
21. Liquidity
22. Solvency
23. Capital structure
24. Working capital
25. Current assets
26. Current liabilities
27. Inventory turnover ratio
28. Financial flexibility
29. Long term debt to equity capital ratio
30. Assets composition analysis
Enumeration:

Debt Security Classification

1. Held to maturity securities
2. Trading securities
3. Available for sale
4. Transfer between categories

Equity Security Classification

5. Less than 20% holding
6. Between 20% and 50% holding
7. Holdings of more than 50%

Potential Distortion on Investment Securities

8. Opportunities for gains trading
9. Liabilities recognize at cost
10. Inconsistent definition of equity securities
11. Classification based on intent

Characteristics of Extra Ordinary Items

12. Unusual nature
13. Infrequent occurrence

Types of Impairment Assets

14. Receivables
15. Goodwill

Supplementary Employee Benefits

16. Deferred compensation contracts
17. Stock appreciation right

Reporting Activities on Statement of Cash Flow

18. Operating activities
19. Investing activities
20. Financing activities
Types of Cash Flow Statement
21. Direct method
22. Indirect method

Process of Projected Income Statement

23. Expected level of macroeconomic activity
24. The competitive landscape
25. New versus old store mix

Important Analysis of Forecasting of Sales

26. Direction and trends in sales
27. Market share
28. Industry and economic conditions
29. Productive and financial capacity
30. Competitive factors

Example of Current Assets

31. Cash
32. Accounts receivable
33. Prepaid expenses
34. Inventory
35. Marketable securities

Example of Current Liabilities

36. Accounts payable
37. Notes payable
38. Taxes payable
39. Accrued expenses
40. Short term bank loans
Essay:

1. Describe weaknesses and inconsistencies in accounting for

noncurrent security investments that are relevant for analysis
purposes.
 Security investments that do not meet both criteria should be
classified as long-term. For example, stocks of privately held
corporations are likely to have very limited markets, and as the
result, such equity investments would not meet the first
criterion and should be classified as long-term. Management
might not have intent to sell the investment in the near term,
and as the result, such an investment should be classified as
long-term

2. Describe an option contract. When is an option likely to be exercised?

 An options contract is an agreement between two parties to
facilitate a potential transaction involving an asset at a preset
price and date. Call options can be purchased as a leveraged
bet on the appreciation of an asset, while put options are
purchased to profit from price declines.
 It only makes sense to exercise your options if they have value.
If they do, they’re known as “in-the-money.” This happens when
the strike price (or exercise price) of your stock options is lower
than the market price of your company shares trading on the
exchange
3. What are the two basic economic concepts of income?
 Economic income
 Permanent income

4. What implications do they have for analysis?

 The financial statement analysis provides important information
to them for their purpose. It is Important to them because they
can obtain useful information for their investment decision
making purpose
5. Describe the three major activities the statement of cash flows
reports. Cite examples of cash flows for each activity.
 Operations activities – this reflects how much cash is generated
from a company’s product or service. Example of this is
payment to employees, taxes and payment to suppliers
 Investing activities are the acquisition or disposal of long-term
assets. Example of this is purchase of property plant and
equipment
 Financing activities focuses on how a firm raises capital and
pay its back to investors through capital markets. Example of
this is issuing bonds, sales of treasury stock
6. Describe the two methods of reporting cash flow from operations.
 Direct method is presented as a list of ongoing and outgoing
cash flow. Essentially the direct method subtracts the money
you spend from the money you received
 Indirect method present operating cash flow as a reconciliation
from profit to cash flow
7. How is return on invested capital used as an internal management
tool?
 ROIC is a calculation used to assess a company’s efficiency at
allocating the capital under its control to profitable investment
8. Why is return on invested capital one of the most relevant measures
of company performance?
 Profit generation is the first and foremost purpose of a
company. The effectiveness of operating performance
determines the ability of the company to survive financially, to
attract suppliers of funds, and to reward them adequately.
Return on invested capital is the prime measure of company
performance. Analysts use it as an indicator of managerial
effectiveness and/or a measure of the company’s ability to earn
a satisfactory return on investment

9. Describe the two-step process of forecasting the balance sheet.

 Through this step which the company thinks about and prepare
for the future results. In the first step, balance sheet items are
projected using forecasted income sales (COGS) and relevant
turnover ratios. Long-term assets are projected using forecasted
capital expenditures. Long-term liabilities are projected from
current maturities of long-term debt disclosed in the debt
footnote, and paid-in-capital is assumed to be constant in this
stage. Retained earnings are projected adding (subtracting)
projected profits (losses) and subtracting projected dividends.
Once total liabilities and equities are forecasted, total assets are
set equal to this amount and forecasted cash is computed as
the plug figure

10. What limitations are associated with short-term cash forecasting?

 Cash flow forecast can be affected by external factors being
experienced by the company, skewing the forecast. A significant
increase in competition or excessive government regulation can
quickly change expected cash flows. Another unforeseen factor
could be changes in technology