财务报表分析英文版答案.docx
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财务报表分析英文版答案.docx
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财务报表分析英文版答案
Chapter3
AnalyzingFinancingActivities
REVIEW
Businessactivitiesarefinancedthrougheitherliabilitiesorequity.Liabilitiesareobligationsrequiringpaymentofmoney,renderingoffutureservices,ordispensingofspecificassets.Theyareclaimsagainstacompany'spresentandfutureassetsandresources.Suchclaimsareusuallyseniortoholdersofequitysecurities.Liabilitiesincludecurrentobligations,longtermdebt,capitalleases,anddeferredcredits.Thischapteralsoconsiderssecuritiesstraddlingthelineseparatingliabilitiesfromequity.Equityreferstoclaimsofownerstothenetassetsofacompany.Whileclaimsofownersarejuniortocreditors,theyareresidualclaimstoallassetsonceclaimsofcreditorsaresatisfied.Equityinvestorsareexposedtothemaximumriskassociatedwithabusiness,butareentitledtoallresidualrewardsassociatedwithit.Ouranalysismustrecognizetheclaimsofbothcreditorsandequityinvestors,andtheirrelationship,whenanalyzingfinancingactivities.Thischapterdescribesbusinessfinancingandhowthisisreportedtoexternalusers.Wedescribetwomajorsourcesoffinancing—creditandequity—andtheaccountingunderlyingreportsoftheseactivities.Wealsoconsideroff-balance-sheetfinancing,includingSpecialPurposeEntities(SPEs),therelevanceofbookvalues,andliabilities"attheedge"ofequity.Techniquesofanalysisexploitingouraccountingknowledgearedescribed.
OUTLINE
∙Liabilities
CurrentLiabilities
NoncurrentLiabilities
AnalyzingLiabilities
∙Leases
LeaseAccountingandReporting–Lessee
AnalyzingLeases
∙Postretirementbenefits
PensionAccounting
OtherPostretirementBenefits(OPEBs)
AnalyzingPostretirementBenefits
∙ContingenciesandCommitments
Contingencies
Commitments
∙OffBalanceSheetFinancing
Through-putandTake-or-payagreements
Productfinancingarrangements
SpecialPurposeEntities(SPEs)
∙Shareholders’Equity
CapitalStock
RetainedEarnings
ComputationofBookValuePerShare
▪Liabilitiesatthe“Edge”ofEquity
RedeemablePreferredStock
MinorityInterest
▪Appendix3A:
LeaseAccounting–Lessor
▪Appendix3B:
AccountingSpecificsforPostretirementBenefits
ANALYSISOBJECTIVES
∙Identifyandassesstheprincipalcharacteristicsofliabilitiesandequity.
∙Analyzeandinterpretleasedisclosuresandexplaintheirimplicationsandtheadjustmentstofinancialstatements.
∙Analyzepostretirementdisclosuresandassesstheirconsequencesforfirmvaluationandrisk.
∙Analyzecontingentliabilitydisclosuresanddescriberisks.
∙Identifyoff-balance-sheetfinancinganditsconsequencestoriskanalysis.
∙Analyzeandinterpretliabilitiesattheedgeofequity.
∙Explaincapitalstockandanalyzeandinterpretitsdistinguishingfeatures.
∙Describeretainedearningsandtheirdistributionthroughdividends.
QUESTIONS
1.Thetwomajorsourceofliabilities,forbothcurrentandnoncurrentliabilities,areoperatingandfinancingactivities.Currentliabilitiesofanoperatingnature—suchasaccountspayableandoperatingexpenseaccruals—representclaimsonresourcesfromoperatingactivities.Currentliabilitiessuchasnotespayable,bonds,andthecurrentmaturitiesoflong-termdebtreflectclaimsonresourcesfromfinancingactivities.
2.Themajordisclosurerequirements(inSECFRR,Section203)forfinancing-relatedcurrentliabilitiessuchasshorttermdebtare:
a.Footnotedisclosureofcompensatingbalancearrangementsincludingthosenotreducedtowriting
b.Balancesheetsegregationof
(1)legallyrestrictedcompensatingbalancesand
(2)unrestrictedcompensatingbalancesrelatingtolongtermborrowingarrangementsifthecompensatingbalancecanbecomputedatafixedamountatthebalancesheetdate.
c.Disclosureofshorttermbankandcommercialpaperborrowings:
i.Commercialpaperborrowingsseparatelystatedinthebalancesheet.
ii.Averageinterestrateandtermsseparatelystatedforshorttermbankandcommercialpaperborrowingsatthebalancesheetdate.
iii.Averageinterestrate,averageoutstandingborrowings,andmaximummonth-endoutstandingborrowingsforshorttermbankdebtandcommercialpapercombinedfortheperiod.
d.Disclosureofamountsandtermsofunusedlinesofcreditforshorttermborrowingarrangements(withamountssupportingcommercialpaperseparatelystated)andofunusedcommitmentsforlongtermfinancingarrangements.
NotethattheabovedisclosuresarerequiredforfilingswiththeSECbutnotnecessarilyfordisclosuresinpublishedannualreports.ItshouldalsobenotedthatSFAS6statesthatcertainshorttermobligationsshouldnotnecessarilybeclassifiedascurrentliabilitiesifthecompanyintendstorefinancethemonalongtermbasisandcandemonstrateitsabilitytodoso.
3.TheconditionsrequiredbySFAS6thatdemonstratetheabilityofthecompanytorefinanceitshorttermdebtonalongtermbasisare:
a.Thecompanyhasactuallyissuedalongtermobligationorequitysecuritiestoreplacetheshorttermobligationafterthedateofthecompany'sbalancesheetbutbeforeitsrelease.
b.Thecompanyhasenteredintoanagreementwithabankorothersourceofcapitalthatpermitsthecompanytorefinancetheshorttermobligationwhenitbecomesdue.
Notethatfinancingagreementsthatarecancelableforviolationofaprovisionthatcanbeevaluateddifferentlybythepartiestotheagreement(suchas“amaterialadversechange”or“failuretomaintainsatisfactoryoperations”)donotmeetthesecondcondition.Also,anoperativeviolationoftheagreementshouldnothaveoccurred.
4.Sincetheinterestratethatwillprevailinthebondmarketatthetimeofissuanceofbondscanneverbepredetermined,bondsusuallyaresoldinexcessofpar(premium)orbelowpar(discount).Thispremiumordiscountrepresents,ineffect,anadjustmentofthecouponratetotheeffectiveinterestrate.Thepremiumreceivedisamortizedoverthelifeoftheissue,thusreducingthecouponrateofinteresttotheeffectiveinterestrateincurred.Conversely,thediscountalsoisamortized,thusincreasingtheeffectiveinterestratepaidbytheborrower.
5.Theaccountingforconvertibilityandwarrantsimpactsincomeandequityasfollows:
a.Theconvertiblefeatureisattractivetoinvestors.Asaresult,thedebtwillbeissuedataslightlylowerinterestrateandtheresultinginterestexpenseisless(andconversely,equityisincreased).Also,dilutedearningspershareisreducedbytheassumedconversion.Atconversion,againorlossonconversionmayresultwhenequityinstrumentsareissued.
b.Similarly,warrantsattachedtobondsallowthebondstopayalowerinterestrate.Asaresult,interestexpenseisreduced(andconversely,equityisincreased).Also,dilutedearningspershareisaffectedbecausethewarrantsareassumedconverted.
6.Itisimportanttotheanalysisofconvertibledebtandstockwarrantstoevaluatethepotentialdilutionofcurrentandpotentialshareholdersiftheholdersoftheseoptionschoosetoconvertthemtostock.Thispotentialdilutionwouldrepresentarealwealthtransferforexistingshareholders.Currently,thispotentialdilutionisgivenlittleformalrecognitioninfinancialstatements.
7.SFAS47requiresnotedisclosureofcommitmentsunderunconditionalpurchaseobligationsthatprovidefinancingtosuppliers.Italsorequiresdisclosureoffuturepaymentsonlongtermborrowingsandredeemablestock.Requireddisclosuresinclude:
Forpurchaseobligationsnotrecognizedonpurchaser'sbalancesheet:
a.Descriptionandtermofobligation.
b.Totalfixedanddeterminableobligation.Ifdeterminable,alsoshowtheseamountsforeachofthenextfiveyears.
c.Descriptionofanyvariableobligation.
d.Amountspurchasedunderobligationforeachperiodcoveredbyanincomestatement.
Forpurchaseobligationsrecognizedonpurchaser'sbalancesheet,paymentsforeachofthenextfiveyears.
Forlong-termborrowingsandredeemablestock:
a.Maturitiesandsinkingfundrequirementsforeachofthenextfiveyears.
b.Redemptionrequirementsforeachofthenextfiveyears.
8.a.Informationaboutdebtcovenantrestrictionsareavailableinthedetailsofthebondindenturesofacompany.Moreover,keyrestrictionsusuallyareidentifiedanddiscussedinthefinancialstatementnotes.
b.Themarginofsafetyasitappliestodebtcontractsreferstotheslackthatthecompanyhasbeforeitwouldviolateanyofthedebtcovenantrestrictionsandbeintechnicaldefault.Forexample,ifthedebtcovenantmandatesamaximumdebttoassetsratioof50%andthecurrentdebttoassetsratiois40%,thecompanyissaidtohaveamarginofsafetyof10%.Technicaldefaultiscostlytoacompany.Thus,asthemarginofsafetydecreases,therelativelevelofcompanyriskincreases.
9.Analysisofthetermsandconditionsofrecordedliabilitiesisanareadeservingananalyst'scarefulattention.Here,theanalystmustexaminecriticallythedescriptionofdebt,itsterms,conditions,andencumbranceswithadesiretosatisfyhim/herastotheabilityofthecompanytomeetprincipalandinterestpayments.Importantanalysesintheevaluationofliabilitiesaretheexaminationoffeaturessuchas:
∙Contractualtermsofthedebtagreement,includingpaymentschedule
∙Restrictionsondeploymentofresourcesandfreedomofaction
∙Abilitytoengageinfurtherfinancing
∙Requirementsrelatingtomaintenanceofworkingcapital,debttoequityratio,etc.
∙Dilutiveconversionfeaturestowhichthedebtissubject.
∙Prohibitionsondisbursementssuchasdividends
Moreover,wereviewtheauditreportsinceweexpectauditorstorequiresatisfactoryrecordinganddisclosureofallexistingliabilities.Auditortestsincl
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