International Financial Statement Analysis (CFA Institute ...

1 International FinancialInternational FinancialStatement AnalysisStatement Analysis $ USA/$ CANThe process of fi nancial Statement Analysis allows you to gain important insights into the true fi nancial condition of a company. With it, realistic valuations can be made for invest-ment, lending, or merger and acquisition purposes. While this discipline has increased in complexity especially on an International level there are ways to deal with the practical challenges you ll face. As part of the CFA Institute Investment Series, International Financial Statement Analysis has been designed to help you effectively evaluate fi nancial statements in today s volatile markets and uncer-tain global International Financial Statement Analysis , the distinguished team of Thomas Robinson, Hennie van Greuning, Elaine Henry, and Michael Broihahn together with a number of experienced contributors provides you with complete cover-age of the most important issues in this fi with both the established and aspiring fi nancial professional in mind, this book will help you understand the mechanics of the accountingprocess, which is the foundation for fi nancial reporting; comprehend the differences and similari-ties in income statements, balance sheets, and cash fl ow statements around the globe.

2 And assess the implications for securities valuation of any fi nancial Statement element or transaction. You ll also dis-cover how different fi nancial Analysis techniques such as ratio Analysis and common-size fi nancial statements can provide valuable clues into a company s operations and risk the way, you ll also become familiar with many other essential aspects of this discipline, including the importance of income tax accounting and reporting, the diffi culty of measuring the value of employee compensation, and the impact of for-eign exchange rates on the fi nancial statements of a multinational to enhance your understanding of the tools and techniques presented here, don t forget to pick up the International Financial Statement Analysis Workbook. This companion guide contains carefully constructed problems with detailed solutions as well as concise learning outcome statements and summary chapter and accessible, International Financial Statement Analysis provides you with the continuity of topic coverage that is so critical to the learning process.

3 Filled with in-depth insights and expert advice, this practical guide offers a detailed look at how fi nancial Statement Analysis can be understood in a global context and applied around the R. ROBINSON, CFA, is Managing Di-rector, Education Division of CFA Institute , where he leads and develops the teams responsible for producing and delivering educational content and examinations to candidates, members, and other investment professionals encompassing the CFA Program, CIPM Program, Lifelong Learning, Private Wealth, Publications, and van GREUNING, CFA, is a Senior Advisor at the World Bank. His World Bank publication on International Financial Reporting Standards has ap-peared in four editions. Mr. van Greuning has also coauthored Analyzing and Managing Banking Risk. ELAINE HENRY, CFA, is an Assistant Professor of Accounting at the University of Miami, where she teaches courses in accounting, fi nancial Statement Analysis , and valuation.

4 After working in corporate fi nance at Lehman Brothers, strategy consulting at McKinsey & Company, and corporate banking at Citibank, she obtained a PhD from Rutgers Univer-sity where she majored in accounting and minored in fi A. BROIHAHN, CFA, is an Associate Professor of Accounting and the Director of Gradu-ate Programs at Barry University in Miami, Florida. His teaching and research interests encompass fi nancial accounting, auditing, and professional ethics. He currently serves CFA Institute in a num-ber of Design: Loretta LeivaJacket Illustration: Getty Images(continued from front flap)(continued on back flap)Robinsonvan GreuningHenryBroihahnK_fdXj I% IfY`ejfe# :=8& ?\ee`\ mXe >i\le`e^# :=8<cX`e\ ?\eip# :=8& D`Z_X\c 8% 9if`_X_e# :=8@EM<JKD<EK J<I@<JINTERNATIONALFINANCIALSTATEMENTANA LYSIS =fi\nfi[ Yp J@I ;8M@; KN<<;@<# :_X`idXe# @ek\ieXk`feXc 8 ZZflek`e^ JkXe[Xi[j 9fXi[ International Financial Statement Analysis is arriving on the scene at the right time with a new and useful orientation and comprehensive coverage.]]]]

5 It should be an important and valuable resource. GARY JOHN PREVITS, E. Mandell de Windt Professor, Case Western Reserve University This text is the basis for analyzing and interpreting fi nancial statements of companies around the globe and appeals to both the student and seasoned investor. It is an essential read and reference book for the global investor in search of alpha. CHRIS SENYEK, CFA, CPA, Managing Director Accounting & Tax Policy Research, ISI Group, Inc. This text is a valuable addition to the fi nancial Statement Analysis literature with its emphasis on fi nancial reporting from an IFRS perspective, while highlighting major differences between IFRS and GAAP throughout. With IFRS rapid global adoption, it provides a fi nancial Statement Analysis foundation for analysts globally who will be comparing IFRS and GAAP fi nancial statements in the coming years as conver-gence continues. The authors integration of the IFRS framework throughout the text is particularly noteworthy, since it is the fi rst source of guidance that professionals utilize when applying IFRS in practice.

6 DAVID R. CAMPBELL SR., Professor of Accounting, Drexel UniversityDon t forget to pick up the International Financial Statement Analysis companion study guide that mirrors this text chapter by R A I S E F O RPRAISE FORINTERNATIONAL FINANCIALINTERNATIONAL FINANCIALSTATEMENT ANALYSISSTATEMENT i9/17/08 12:47:45 PM9/17/08 12:47:45 PMINTERNATIONAL Financial Statement i9/17/08 12:47:45 PM9/17/08 12:47:45 PMCFA Institute is the premier association for investment professionals around the world, with over 95,000 members in 134 countries. Since 1963 the orga-nization has developed and administered the renowned Chartered Financial Analyst Program. With a rich history of leading the investment profession, CFA Institute has set the highest standards in ethics, education, and profes-sional excellence within the global investment community, and is the fore-most authority on investment profession conduct and book in the CFA Institute Investment Series is geared toward indus-try practitioners, along with graduate-level fi nance students, and covers the most important topics in the industry.

7 The authors of these cutting-edge books are themselves industry professionals and academics and bring their wealth of knowledge and expertise to this ii9/17/08 12:47:46 PM9/17/08 12:47:46 PMINTERNATIONAL Financial Statement ANALYSIST homas R. Robinson, CFAH ennie van Greuning, CFAE laine Henry, CFAM ichael A. Broihahn, CFAJohn Wiley & Sons, iii9/17/08 12:47:46 PM9/17/08 12:47:46 PMCopyright 2009 by CFA Institute . All rights by John Wiley & Sons, Inc., Hoboken, New simultaneously in part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc.

8 , 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at of Liability/Disclaimer of Warranty: While the publisher and authors have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) also publishes its books in a variety of electronic formats.

9 Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at of Congress Cataloging-in-Publication Data: International fi nancial Statement Analysis / Thomas R. Robinson .. [et al.]. p. cm. (CFA Institute investment series) Includes index. ISBN 978-0-470-28766-8 (cloth) 1. Financial statements. 2. International business enterprises Accounting. I. Robinson, Thomas R. 2008 657'.3 dc22 2008014644 Printed in the United States of America10 9 8 7 6 5 4 3 2 iv9/17/08 12:47:47 PM9/17/08 12:47:47 PMvCONTENTSF oreword xviiPreface xixAcknowledgments xxiiiIntroduction xxvCHAPTER 1 Financial Statement Analysis : An Introduction 1 Learning Outcomes 11.

10 Introduction 22. Scope of Financial Statement Analysis 23. Major Financial Statements and Other Information Sources Financial Statements and Supplementary Information Other Sources of Information 164. Financial Statement Analysis Framework Articulate the Purpose and Context of Analysis Collect Data Process Data Analyze/Interpret the Processed Data Develop and Communicate Conclusions/Recommendations Follow Up 225. Summary 22 Practice Problems 23 CHAPTER 2 Financial Reporting Mechanics 25 Learning Outcomes 251. Introduction 262. The Classifi cation of Business Activities 263. Accounts and Financial Statements Financial Statement Elements and Accounts Accounting Equations v9/17/08 12:48:13 PM9/17/08 12:48:13 PMvi Contents4. The Accounting Process An Illustration The Accounting Records Financial Statements 505. Accruals and Valuation Adjustments Accruals Valuation Adjustments 546.