Financial Statement Analysis Chapter 4
Financial Statement Analysis
K R Subramanyam John J Wild
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
4-2
Analyzing Investing Activities
4
CHAPTER
4-3
Current Asset Introduction
Classification Current (Short-term) Assets
Resources or claims to resources that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer.
Noncurrent (Longterm) Assets
Resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer.
4-4
Current Asset Introduction
Cash, Cash Equivalents and Liquidity
Cash Currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts.
4-5
Current Asset Introduction
Cash, Cash Equivalents and Liquidity Cash Equivalents
Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity date and not sensitive to interest rate changes.
4-6
Current Asset Introduction
Analysis of Cash and Cash Equivalents • Companies risk a reduction in liquidity should the market value of short-term investments decline. • Cash and cash equivalents are sometimes required to be maintained as compensating balances to support existing borrowing arrangements or as collateral for indebtedness.
4-7
Current Asset Introduction
Receivables Receivables are amounts due from others that arise from the sale of goods or services, or the loaning of money
Accounts receivable refer to oral promises of indebtedness due from customers
Notes receivable refer to formal written promises of indebtedness due from others
4-8
Current Asset Introduction
Valuation of Receivables
Receivables are reported at their net realizable value — total amount of receivables less an allowance for uncollectible accounts Management estimates the allowance for uncollectibles based on
K R Subramanyam John J Wild
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
4-2
Analyzing Investing Activities
4
CHAPTER
4-3
Current Asset Introduction
Classification Current (Short-term) Assets
Resources or claims to resources that are expected to be sold, collected, or used within one year or the operating cycle, whichever is longer.
Noncurrent (Longterm) Assets
Resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer.
4-4
Current Asset Introduction
Cash, Cash Equivalents and Liquidity
Cash Currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts.
4-5
Current Asset Introduction
Cash, Cash Equivalents and Liquidity Cash Equivalents
Short-term, highly liquid investments that are: Readily convertible to a known cash amount. Close to maturity date and not sensitive to interest rate changes.
4-6
Current Asset Introduction
Analysis of Cash and Cash Equivalents • Companies risk a reduction in liquidity should the market value of short-term investments decline. • Cash and cash equivalents are sometimes required to be maintained as compensating balances to support existing borrowing arrangements or as collateral for indebtedness.
4-7
Current Asset Introduction
Receivables Receivables are amounts due from others that arise from the sale of goods or services, or the loaning of money
Accounts receivable refer to oral promises of indebtedness due from customers
Notes receivable refer to formal written promises of indebtedness due from others
4-8
Current Asset Introduction
Valuation of Receivables
Receivables are reported at their net realizable value — total amount of receivables less an allowance for uncollectible accounts Management estimates the allowance for uncollectibles based on