Reading 26: Integration of Financial Statement Analysis Techn particular, 2010, class, statements, framework

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Session 7: Financial Reporting and Analysis: Earnings Quality Issues
and Financial Ratio Analysis
Reading 26: Integration of Financial Statement Analysis Techniques

LOS a: Demonstrate the use of a framework for the analysis of financial statements, given a particular problem, question, or purpose (e.g., valuing equity based on comparables, critiquing a credit rating, obtaining a comprehensive picture of financial leverage, evaluating the perspectives given in management's discussion of financial results).

 

 

 

Wanda Brunner, CFA, is analyzing Straight Elements, Inc., (SE). SE is a discount manufacturer of parts and supplies for the railroad industry. She has followed her firm’s suggested financial analysis framework, and has assembled output from processing data. When applying the financial analysis framework, which of the following is the best example of output from processing data?

A) Common-size financial statements.

B) Audited financial statements.

C) A written list of questions to be answered by the analysis.

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Common-size financial statements are created in the data processing step of the framework for financial analysis. Audited financial statements would be obtained during the “collect input” phase of the financial analysis framework. Creating a written list of questions to be answered by the analysis is part of the “define the purpose” phase of the financial analysis framework.

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An analyst is analyzing a discount manufacturer of parts and supplies. She has followed her firm’s suggested financial analysis framework and has communicated with company suppliers, customers, and competitors. This is an input that occurs while:

A) collecting data.

B) processing data.

C) establishing the objective of the analysis.

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Communication with management, suppliers, customers, and competitors is an input during the data collection step. Processing data is the third phase of the financial analysis framework. Establishing the objective of the analysis is part of the “define the purpose” phase of the financial analysis framework.