FMGT 75A FINANCIAL ANALYSIS AND REPORTING (MIDTERM SAMPLE TEST)

BUSINESS ANALYSIS

process of evaluating a company's economic prospects and
risks. This includes analyzing a company's business environment, its strategies, and its financial
position and performance.

FINANCIAL STATEMENT ANALYSIS

application of analytical tools and techniques to
general-purpose financial statements and related data to derive estimates and inferences useful
in business analysis. It reduces reliance on hunches, guesses, and
intuition for business decisions.

CREDIT ANALYSIS

evaluation of the creditworthiness of a company. Creditworthiness is the
ability of a company to honor its credit obligations. Credit analysis focuses on downside risk
instead of upside potential.

LIQUIDITY

company's ability to raise cash in the short term to meet its obligations.
Liquidity depends on a company's cash flows and the makeup of its current assets and
current liabilities.

SOLVENCY

company's long-run viability and ability to pay long-term obligations. It
depends on both a company's long-term profitability and its capital (financing) structure.

CREDITORS

lend funds to a company in return for a promise of repayment with interest.

TRADE CREDITORS

deliver goods or services to a company and expect payment
within a reasonable period, often determined by industry norms.

NONTRADE CREDITORS

provide financing to a company in return for a promise,
usually in writing, of repayment with interest (explicit or implicit) on specific future dates.

EQUITY ANALYSIS

process of analyzing sectors and companies, to give advice to professional fund
managers and private clients on which shares to buy.

TECHNICAL ANALYSIS

searches for patterns in the price or volume history of a
stock to predict future price movements.

FUNDAMENTAL ANALYSIS

process of determining the value of a company by analyzing
and interpreting key factors for the economy, the industry, and the company.

INTRINSIC VALUE

value of a company (or its stock) determined through
fundamental analysis without reference to its market value (or stock price).

EQUITY INVESTORS

provide funds to a company in return for the risks and rewards of ownership.

INDUSTRY ANALYSIS

usual first step since the prospects and structure of its
industries largely drive a company's profitability.

STRATEGY ANALYSIS

evaluation of both a company's business decisions and its
success at establishing a competitive advantage

ACCOUNTING ANALYSIS

process of evaluating the extent to which a company's accounting
reflects economic reality. This is done by studying a company's transactions and events,
assessing the effects of its accounting policies on financial statements, and adjusting the
statements to both better reflect the underlying economics and make them more amenable to
analysis.

COMPARABILITY PROBLEMS

arise when different companies adopt different accounting for
similar transactions or events.

ACCOUNTING DISTORTIONS

deviations of accounting information from the underlying
economics.

ACCOUNTING RISK

uncertainty in financial statement analysis due to
accounting distortions.

FINANCIAL ANALYSIS

use of financial statements to analyze a company's financial
position and performance, and to assess future financial performance.

PROFITABILITY ANALYSIS

focuses on a company's sources and levels of profits and involves
identifying and measuring the impact of various profitability drivers.

RISK ANALYSIS

evaluation of a company's ability to meet its commitments.

ANALYSIS OF CASH FLOWS

the evaluation of sources and uses of funds.

PROSPECTIVE ANALYSIS

forecasting of future payoffs—typically earnings, cash flows,
or both. This analysis draws on accounting analysis, financial analysis, and business environment
and strategy analysis. The output of prospective analysis is a set of expected future payoffs used
to estimate the company's value.

VALUATION

refers to the
The process of converting forecasts of future payoffs into an estimate of company value. main objective of many types of business analysis.

PLANNING ACTIVITIES

to implement specific goals and objectives. company's goals
and objectives are captured in a business plan that describes the company's purpose,
strategy, and tactics for its activities.

FINANCING ACTIVITIES

refer to methods that companies use to raise the money to
pay for these needs.

EQUITY INVESTORS

provide financing in a desire for a return on their investment, after
considering both expected return and risk.

RETURN

equity investor's share of company earnings in the form of either
earnings distribution or earnings reinvestment.

EARNINGS DISTRIBUTION

payment of dividends to shareholders.

DIVIDENDS

can be paid directly in the form of cash or stock dividend, or
indirectly through stock repurchases.

DIVIDENDS PAYOUT

refers to the proportion of earnings distributed.

EARNINGS REINVESTMENT

refers to retaining earnings within the company for
use in its business.

EARNINGS RETENTION RATIO

reflecting the proportion of earnings retained.

PRIVATE OFFERINGS

usually involve selling shares to one or more individuals or
organizations.

PUBLIC OFFERINGS

involve selling shares to the public.

DEBT CREDITORS

who directly lend money to the company.

OPERATING CREDITORS

to whom the company owes money as part of its
operations.

CREDITOR FINANCING

an agreement or contract that requires repayment of the
loan with interest at specific dates.

INVESTING ACTIVITIES

Refer to a company's acquisition and maintenance of investments for purposes of
selling products and providing services, and for the purpose of investing excess
cash.

OPERATING ACTIVITIES

Represent the "carrying out" of the business plan given its financing and investing
activities. company's primary source of earnings.

ASSETS

investments that are expected to generate future earnings through operating
activities.

LIABILITIES

funding from creditors and represent obligations of a company or,
alternatively, claims of creditors on assets.

CURRENT ASSETS

expected to be converted to cash or used in operations within one
year or the operating cycle, whichever is longer.

CURRENT LIABILITIES

obligations the company is expected to settle within one year or
the operating cycle, whichever is longer.

WORKING CAPITAL

difference between current assets and current liabilities.

INCOME STATEMENT

measures a company's financial performance over a period of time,
typically a year or a quarter. It is a financial representation of the operating activities of a
company during the period.

NET INCOME

measure the amount that the company earned during the period.

GROSS PROFIT

difference between sales and cost of goods sold
and measures the ability of a company to cover its product costs.

OPERATING EARNINGS

does not have a fixed definition but refers to the difference between
sales revenues and all operating expenses.

PAR VALUE

minimum legal capital that must be
maintained inside the company in order to provide some measure of protection
to the creditors.

RETAINED EARNINGS

amount of net income left over for the business
after it has paid out dividends to its shareholders.

UNREALIZED GAIN

loss occurs when an investment, pension plan, or
hedging transaction has appreciated or depreciated in fair value, but a sale
transaction has not yet occurred for the gain or loss to be realized.

TREASURY STOCK

Stock already issued but subsequently reacquired by the corporation and held
for possible future reissuance or retirement

COMPARATIVE FINANCIAL STATEMENT ANALYSIS

conducted by reviewing consecutive balance
sheets, income statements, or statements of cash flows from period to period. (TREND)

COMMON-SIZE FINANCIAL STATEMENT ANALYSIS

This procedure also is called vertical analysis given the up-down (or down-up) evaluation
of accounts. It is useful in understanding the internal makeup
of financial statements.

RATIO ANALYSIS

Evaluate relation between two or more economically important items (one starting point
for further analysis). Mathematical expression of relation between two or more items.

CASH FLOW ANALYSIS

primarily used as a tool to evaluate the sources and uses of funds. It also is used in cash flow forecasting and as part of liquidity analysis.

VALUATION

important outcome of many types of business and financial statement
analysis. Normally refers to estimating the intrinsic value of a company or its stock.

PRESENT VALUE THEORY

This theory states the value of a debt or
equity security (or for that matter, any asset) is equal to the sum of all expected future
payoffs from the security that are discounted to the present at an appropriate discount
rate. uses the concept of time value of money.

SEC FORM 17-A

An annual report that contains audited annual financial statements,
management discussion and analysis, and supplementary information. Annual reports
shall be filed within one hundred five (105) calendar days after the end of the fiscal year
covered by the report.

SEC FORM 17-Q

This report contains quarterly financial statements, management
discussion and analysis, and supplementary information. Quarterly reports shall be filed
within forty five (45) calendar days after the end of each quarter covered by the report.

SEASONALITY

When examining trends, we must consider effects of seasonality.

YEAR-END ADJUSTMENTS

Companies often make adjustments in the final quarter. Many of
these adjustments relate to the entire year.

SEC FORM 17-C

An earnings announcement is made available to traders on the stock
exchange and is often reported in the financial press. It provides key summary information
about company position and performance for both quarterly and annual periods.

SEC FORM 20-IS

used in connection with every annual
meeting or other meeting of stockholders by publicly-listed companies, and to notify its
shareholders who are entitled to vote or give an authorization or consent to any matter to
be acted upon at a stockholders' meeting.

PROXY STATEMENT

Details of board of directors, managerial ownership, managerial
remuneration, and employee stock options.

PROSPECTUS

Must accompany an application for an equity offering and main marketing
document for the offer.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

a common set of accepted accounting principles, standards, and procedures that
companies and their accountants must follow when they compile their financial statements

INTERNATIONAL FINANCIAL REPORTING STANDARDS

a set of international accounting
standards, which state how particular types of transactions and other events should be
reported in financial statements

RELEVANCE

the capacity of information to affect a decision. This implies that
timeliness is a desirable characteristic of accounting information.

RELIABILITY

it must be verifiable, representationally faithful,
and neutral.

VERIFIABILITY

means the information is confirmable.

REPRESENTATIONAL FAITFULNESS

means the information reflects reality,

NEUTRALITY

means it is truthful and
unbiased.

COMPARABILITY

implies that information is measured in a similar manner across
companies.

CONSISTENCY

implies the same method is used for similar transactions across time.

ACCRUAL ACCOUNTING

revenues are recognized when earned
and expenses when incurred, regardless of the receipt or payment of cash.

HISTORICAL COST

a measure of value used in accounting in which the value of an
asset on the balance sheet is recorded at its original cost when acquired by the
company.

FAIR VALUE

estimates of the current economic value of an asset or liability.

MATERIALITY

the magnitude of an omission or misstatement of accounting information that,
in the light of surrounding circumstances, makes it possible that the judgment of a
reasonable person relying on the information would be changed or influenced by the
omission or misstatement.

CONSERVATISM

Involves reporting the least optimistic view when faced with uncertainty
in measurement.

ACCRUALS

the sum of accounting adjustments that make net income different from net
cash flow.

ACCRUAL ADJUSTMENTS

adjust cash inflows and cash outflows to yield revenues and
expenses.

SHORT TERM ACCRUALS

arise primarily from inventories and credit transactions that give
rise to all types of receivables and payables such as trade debtors and creditors, prepaid
expenses, and advances received.

LONG TERM ACCRUALS

arise from asset capitalization which is the process of deferring
costs incurred in the current period whose benefits are expected in future periods. This
process generates long-term assets such as plant, machinery, and goodwill.

OPERATING CASH FLOW

- refers to cash from a company's ongoing operating activities

NET CASH FLOW

bottom line cash flow and the change in the cash account balance.

FREE CASH FLOW TO THE FIRM

represents the cash flows from operations available
for distribution after depreciation expenses, taxes, working capital, and investments are
accounted for.

FREE CASH FLOW TO EQUITY

measure of how much cash is available to the
equity shareholders of a company after all expenses, reinvestment, and debt are paid.

INCOME

(also referred to as earnings or profit) summarizes, in financial terms, the net
effects of a business's operations during a given time period.

ECONOMIC INCOME

typically represented by the change in the market value of the business's net
assets. It generally recognizes unrealized gains, in addition to recognizing realized gains.

PERMANENT INCOME

Also called sustainable income or recurring income). The stable average income that a business is expected to earn over its life, given
the current state of its business conditions.

OPERATING INCOME

Refers to income that arises from a company's operating activities

ACCOUNTING INCOME

The profit a company retains after paying off all relevant expenses from sales
revenue earned. It is synonymous with net income, which is most often found at the end of the
income statement.

CURRENT RATIO

the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future.

CASH TO CURRENT ASSETS RATIO

the ratio of "near-cash" assets to the total of current assets is one measure of the degree of current asset liquidity.

CASH TO CURRENT LIABILITIES RATIO

this ratio measures the cash available to pay current obligations.