AbstractFinancial statement analysis has traditionally been seen as part of the fundamental analysis required for equity valuation. But the analysis has typically been ad hoc. Drawing on recent research on accounting-based valuation, this paper outlines a financial statement analysis for use in equity valuation. Standard profitability analysis is incorporated, and extended, and is complemented with an analysis of growth. An analysis of operating activities is distinguished from the analysis of financing activities. The perspective is one of forecasting payoffs to equities. So financial statement analysis is presented as a matter of pro forma analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. The analysis of current financial statements is then seen as a matter of identifying current ratios as predictors of the future ratios that determine equity payoffs. The financial statement analysis is hierarchical, with ratios lower in the ordering identified as finer information about those higher up. To provide historical benchmarks for forecasting, typical values for ratios are documented for the period 1963-1999, along with their cross-sectional variation and correlation. And, again with a view to forecasting, the time series behavior of many of the ratios is also described and their typical "long-run, steady-state" levels are documented. Show Download PDF CitationNissim, Doron, and Stephen Penman. "Ratio Analysis and Equity Valuation: From Research to Practice." Review of Accounting Studies 6, no. 1 (March 2001): 109-54. Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member. Each topic is linked to an index of publications on that topic.  Topic 2 – Building Blocks in Financial Accounting I-Basic building blocs 1.Definitions Asset: economic resource of the firm. It must be acquired at measurable cost, obtained or controlled by the entity, expected to produce future economic benefits and arises from a past transaction or event Non-current asset: in the entity for more than 1 year or longer than operating cycle Current asset: in the entity for less than a year Tangible asset: physical substance Intangible asset: without physical substance Financial asset: derives value because of a contractual claim Inventories: held for sale in normal course of business or input to produce goods or services for sale Accounts receivable: created by a credit sale on open account Cash: in cash money or equivalent Lliabilities: it must involve a probable future sacrifice of economic resources by the entity, the economic resource transfer to another entity, the future sacrifice is a present obligation arising from a past transaction or event Shareholders’ equity: economic obligation towards owners of firm Share capital: economic obligation towards owners of firm from shareholders Retained earnings: economic obligation towards owners of firm from the firm itself, net income retained in a corporation. It is increased by net income and is decreased by dividends and a net loss Liabilities economic obligation towards third parties to firm Asset and liabilities = balance sheetExpenses and revenue = income statement 1/13 What are the building blocks of financial statement analysis?The building blocks of financial statement analysis include (1) liquidity, (2) salability, (3) solvency, and (4) profitability. A rough guideline states that for a company with no discounts offered, days' sales uncollected should not exceed 1 1/3 times the days in its credit period. You just studied 23 terms!
What are the 5 components of financial analysis?5 Key Elements of a Financial Analysis. Revenues. Revenues are probably your business's main source of cash. ... . Profits. If you can't produce quality profits consistently, your business may not survive in the long run. ... . Operational Efficiency. ... . Capital Efficiency and Solvency. ... . Liquidity.. Which one is not a financial statement analysis tool?The correct answer to the given question is b. Circular analysis. There is no method called circular analysis in financial statement analysis.
What are the 3 types of financial statement analysis?Financial accounting calls for all companies to create a balance sheet, income statement, and cash flow statement, which form the basis for financial statement analysis. Horizontal, vertical, and ratio analysis are three techniques that analysts use when analyzing financial statements.
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Which is not considered one of the building blocks of financial statement analysis?
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