华中科技大学：《财务报表分析》（英文版）CHAPTER 4 Analyzing Financing Activities

Analyzing Financing Activities 4 CHAPTER

4 CHAPTER Analyzing Financing Activities

Current Asset l ntroduction Classification Current(short Noncurrent term)Assets (Long-Term) Assets Resources or claims to resources that are Resources or claims expected to be sold, to resources that are collected or used expected to yield within one year or the benefits that extend operating cycle, beyond one year or whichever is longer the operating cycle, whichever is longer

Current (short￾term) Assets Noncurrent (Long-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. Resources or claims to resources that are expected to yield benefits that extend beyond one year or the operating cycle, whichever is longer. Current Asset Introduction Classification

Current Asset ntroduction Operating Cycle Cash on hand Cash on hand 00 2①0 25 o0 aao 3 3 Services sold to Products sold customers to customers

Current Asset Introduction Operating Cycle Services sold to customers Cash on hand 1 2 Cash paid to employees 3 4 Customers pay for services Products sold to customers Cash on hand 1 2 Cash paid for products 4 Customers pay for products 3

Current Asset l ntroduction Cash, Cash Equivalents and Liquidity Cash Currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts

Cash Currency, coins and amounts on deposit in bank accounts, checking accounts, and some savings accounts. Current Asset Introduction Cash, Cash Equivalents and Liquidity

Current Asset l ntroduction Cash, Cash Equivalents and Liquidity Cash Equivalents Short-term, highly liquid investments that are o Readily convertible to a known cash amount 2 Close to maturity date and not sensitive to interest rate changes

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. Current Asset Introduction Cash, Cash Equivalents and Liquidity

Current Asset ntroduction Analysis of Cash and Cash Equivalents Does not present serious valuation problems because of its liquidity Requires special precautions against theft and defalcation Examine for restrictions on disposition remove restricted balances from current assets since they are not available for paying current obligations in assessing liquidity, Cash and cash equivalents as percent of Total consider repercussions Assets of violating these 25.00% agreements 20.00% 15.00% 10.00% Series 1 exposure often measured.00% by the ratio of restricted balances to the total

• Does not present serious valuation problems because of its liquidity • Requires special precautions against theft and defalcation • Examine for restrictions on disposition — remove restricted balances from current assets since they are not available for paying current obligations — in assessing liquidity, consider repercussions of violating these agreements — exposure often measured by the ratio of restricted balances to the total Current Asset Introduction Analysis of Cash and Cash Equivalents Cash and Cash Equivalents as Percent of Total Assets 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% Kodak Texas Instruments Coca-Cola Sears Delta Chiron Series1

Current Asset l ntroduction 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

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 Current Asset Introduction Receivables

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 experience, customer fortunes, economy and industry expectations, and collection policies

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 experience, customer fortunes, economy and industry expectations, and collection policies Current Asset Introduction Valuation of Receivables

Current Asset ntroduction Analyzing Receivables Assessment of earnings quality is often affected by an analysis of receivables and their collectibility Analysis must be alert to changes in the allowance--computed relative to sales receivables, or industry and market conditions Two special analysis questions (1)Authenticity of Receivables Review credit policy for changes Review return policies for changes Review any contingencies on receivables (2 Collection Risk Review allowance for uncollectibles in light of industry conditions Apply special tools for analyzing collectibility Determining competitors'receivables as a percent of sales-vis-a-vis the company under analysis Examining customer concentration-risk increases when receivables are concentrated in one or a few customers Investigating the age pattern of receivables-overdue and for how long Determining portion of receivables that is a renewal of prior receivables Analyzing adequacy of allowances for discounts, returns, and other credits

Assessment of earnings quality is often affected by an analysis of receivables and their collectibility Analysis must be alert to changes in the allowance—computed relative to sales, receivables, or industry and market conditions. Two special analysis questions: (1) Authenticity of Receivables Review credit policy for changes Review return policies for changes Review any contingencies on receivables (2) Collection Risk Review allowance for uncollectibles in light of industry conditions Apply special tools for analyzing collectibility: • Determining competitors’ receivables as a percent of sales—vis-à-vis the company under analysis • Examining customer concentration—risk increases when receivables are concentrated in one or a few customers • Investigating the age pattern of receivables—overdue and for how long • Determining portion of receivables that is a renewal of prior receivables • Analyzing adequacy of allowances for discounts, returns, and other credits Current Asset Introduction Analyzing Receivables

Current Asset ntroduction Securitization of Receivables Securitization(or factoring) is when a company sells all or a portion of its receivables to a third party Receivables can be sold with or without recourse to a seller (recourse refers to guarantee of collectibility) Sale of receivables with recourse does not effectively transfer risk of ownership Sale of receivables without recourse does not always transfer risk of ownership

Securitization (or factoring) is when a company sells all or a portion of its receivables to a third party Receivables can be sold with or without recourse to a seller (recourse refers to guarantee of collectibility) Sale of receivables with recourse does not effectively transfer risk of ownership Sale of receivables without recourse does not always transfer risk of ownership Current Asset Introduction Securitization of Receivables