Chapter 1: Framework for Business Analysis and Valuation Using Financial Statements

Chapter 1: Framework for Business Analysis and Valuation Using Financial Statements

Copyright (c) 2010 South-Western Cengage Learning

Chapter 2: Strategy analysis - Palepu, Healy & Peek

Key Concepts in Chapter 1

• Financial statements are an important source of information to the capital markets and business analysts.

• Analyzing financial statements addresses a number of issues of interest to external stakeholders and company insiders.

Copyright (c) 2010 South-Western Cengage Learning

Chapter 2: Strategy analysis - Palepu, Healy & Peek

The Role of Financial Reporting in Capital Markets

• Financial reporting provide much-needed information to capital market participants

– Financial intermediaries depend upon the information in financial statements to evaluate investment opportunities. – Information intermediaries assure the quality of financial statement representations. – Relevant and reliable financial information is essential for the functioning of capital markets.

Copyright (c) 2010 South-Western Cengage Learning

Chapter 2: Strategy analysis - Palepu, Healy & Peek

How Capital Markets Function

Copyright (c) 2010 South-Western Cengage Learning

Chapter 2: Strategy analysis - Palepu, Healy & Peek

From Business Activities to Financial Statements

• Financial statements measure and summarize the economic consequences of business activities. • Accounting systems facilitate information quality.

– – – – The role of accrual accounting. The need for accounting conventions and standards. Managers’ accounting choices and strategies. Auditing and the quality of financial information.

Copyright (c) 2010 South-Western Cengage Learning

Chapter 2: Strategy analysis - Palepu, Healy & Peek

From Business Activities to Financial Statements

Copyright (c) 2010 South-Western Cengage Learning

Chapter 2: Strategy analysis - Palepu, Healy & Peek

Financial Statements and Business Analysis

• Business intermediaries use...