chap004-Analyzing-Investing-Activities(財務報表分析-臺灣中興大學)

4CHAPTERAnalyzingInvestingActivitiesMcGraw-Hill/Irwin?2004TheMcGraw-HillCompanies,Inc.,AllRightsReserved.Current(short-term)AssetsNoncurrent(Long-Term)AssetsResourcesorclaimstoresourcesthatareexpectedtobesold,collected,orusedwithinoneyearortheoperatingcycle,whicheverislonger.Resourcesorclaimstoresourcesthatareexpectedtoyieldbenefitsthatextendbeyondoneyearortheoperatingcycle,whicheverislonger.CurrentAssetIntroduction

ClassificationCurrentAssetIntroduction

OperatingCycleServicessoldtocustomersCashonhand12Cashpaidtoemployees34CustomerspayforservicesProductssoldtocustomersCashonhand12Cashpaidforproducts4Customerspayforproducts3CashCurrency,coinsandamountsondepositinbankaccounts,checkingaccounts,andsomesavingsaccounts.CurrentAssetIntroduction

Cash,CashEquivalentsandLiquidityCashEquivalentsShort-term,highlyliquidinvestmentsthatare: Readilyconvertibletoaknowncash amount. Closetomaturitydateandnot sensitivetointerestratechanges.CurrentAssetIntroduction

Cash,CashEquivalentsandLiquidity? Doesnotpresentseriousvaluationproblemsbecauseofits liquidity? Requiresspecialprecautionsagainsttheftanddefalcation? Examineforrestrictionsondisposition

— removerestrictedbalancesfromcurrentassetssincetheyarenot availableforpayingcurrentobligations — inassessingliquidity, considerrepercussions ofviolatingthese agreements — exposureoftenmeasured bytheratioofrestricted balancestothetotal

CurrentAssetIntroduction

AnalysisofCashandCashEquivalents

Receivablesareamountsduefromothersthatarisefromthesaleofgoodsorservices,ortheloaningofmoneyAccountsreceivablerefertooralpromisesofindebtednessduefromcustomersNotesreceivablerefertoformalwrittenpromisesofindebtednessduefromothersCurrentAssetIntroduction

ReceivablesReceivablesarereportedattheirnetrealizablevalue—totalamountofreceivableslessanallowanceforuncollectibleaccountsManagementestimatestheallowanceforuncollectiblesbasedonexperience,customerfortunes,economyandindustryexpectations,andcollectionpoliciesCurrentAssetIntroduction

ValuationofReceivables

AssessmentofearningsqualityisoftenaffectedbyananalysisofreceivablesandtheircollectibilityAnalysismustbealerttochangesintheallowance—computedrelativetosales,receivables,orindustryandmarketconditions.Twospecialanalysisquestions:(1)CollectionRisk Reviewallowanceforuncollectiblesinlightofindustryconditions Applyspecialtoolsforanalyzingcollectibility:

?Determiningcompetitors’receivablesasapercentofsales—vis-à-visthe companyunderanalysis

? Examiningcustomerconcentration—riskincreaseswhenreceivablesare concentratedinoneorafewcustomers

?Investigatingtheagepatternofreceivables—overdueandforhowlong

?Determiningportionofreceivablesthatisarenewalofpriorreceivables

?Analyzingadequacyofallowancesfordiscounts,returns,andothercredits(2)AuthenticityofReceivablesReviewcreditpolicyforchangesReviewreturnpoliciesforchangesReviewanycontingenciesonreceivablesCurrentAssetIntroduction

AnalyzingReceivablesSecuritization(orfactoring)iswhenacompanysellsalloraportionofitsreceivablestoathirdparty

Receivablescanbesoldwithorwithoutrecoursetoaseller(recoursereferstoguaranteeofcollectibility) Saleofreceivableswithrecourse doesnoteffectivelytransferriskof ownership

CurrentAssetIntroduction

SecuritizationofReceivables

Forsecuritizationswithanytypeofrecourse,thesellermustrecordbothanassetandacompensatingliabilityfortheamountfactoredForsecuritizationswithoutanyrecourse,thesellerremovesthereceivablesfromthebalancesheet

CurrentAssetIntroduction

AnalysisofSecuritization

CurrentAssetIntroduction

AnalysisofSecuritization

BalanceSheetEffectsofSecuritization

Prepaidexpenses

areadvancepaymentsforservicesorgoodsnotyetreceivedthatextendbeyondthecurrentaccountingperiod—examplesareadvancepaymentsforrent,insurance,utilities,andpropertytaxesCurrentAssetIntroduction

PrepaidExpensesTwoanalysisissues:(1) Forreasonsofexpediency,noncurrentprepaidssometimesareincludedamongprepaidexpensesclassifiedascurrent--whentheirmagnitudeislarge,theywarrantscrutiny(2)Anysubstantialchangesinprepaidexpenses warrantscrutinyAnalysisofPrepaidsInventoriesDefinitionsInventoriesaregoodsheldforsale,orgoodsacquired(orinprocessofbeingreadied)forsale,aspartofacompany’snormaloperationsExpensingtreatsinventorycostslikeperiodcosts—costsarereportedintheperiodwhenincurredCapitalizingtreatsinventorycostslikeproductcosts—costsarecapitalized asanassetandsubsequently chargedagainstfuture period(s) revenues benefitingfromtheirsaleMerchandiseAvailableforSaleNetCostofPurchasesCostofGoodsSoldBeginningInventoryEndingInventoryInventoriesInventoryCostFlows

UseofInventoryMethodsinPracticeInventoriesInventoryCostingMethod

CostsofGoodsSoldEndingInventoryOldestCostsRecentCostsInventoriesFirst-In,First-Out(FIFO)

CostsofGoodsSoldEndingInventoryRecentCostsOldestCostsInventoriesLast-In,First-Out(LIFO)Whenaunitissold,theaveragecostofeachunitininventoryisassignedtocostofgoodssold.CostofGoodsAvailableforSaleUnitsavailableonthedateofsale÷InventoriesAverageCostInventoryonJanuary1,Year2 40@$500 $20,000Inventoriespurchasedduringtheyear 60@$600

36,000CostofGoodsavailableforsale 100units $56,000Note:30unitsaresoldinYear2for$800each=TotalRevenue-$24,000InventoriesIllustrationofCostingMethods Beginning Net Costof Ending

Inventory + Purchases = GoodsSold + InventoryFIFO $20,000 + $36,000 = $15,000 + $41,000LIFO $20,000 + $36,000 = $18,000 + $38,000Average $20,000 + $36,000 = $16,800 + $39,200

Assumesalesof$35,000fortheperiod—thengrossprofitundereachmethodis: Sales –CostofGoodsSold= GrossProfitFIFO $24,000 -- 15,000 = $7000

LIFO $24,000 -- 18,000 = $6,000Average $24,000 -- 16,800 = $7,200InventoriesIllustrationofCostingMethodsAcompanyisrequiredtousethesameaccountingmethodsfromperiodtoperiod.Achangeisonlyacceptablewhenitimprovesfinancialreporting.InventoriesInventorymustbereportedatmarketvaluewhenmarketislowerthancost.Definedascurrentreplacementcost(notsalesprice).Canbeappliedthreeways:(1) separatelytoeach individualitem.(2) tomajorcategoriesof assets.(3) tothewholeinventory.Dictatedbytheconservatismprinciple.InventoriesComputeLCMforindividualitems,inventorygroups,andoverallinventory.InventoriesPurchaseCommitmentsarecontractswithotherentitiestopurchaseinventoryseveralmonthsoryearsinadvanceAccountingdoesnotreflectthesecommitmentssincetitletothegoodshasnotpassedtothebuyerDisclosureexistsforcertainnoncancelable purchasecommitments

InventoriesInventoryPurchaseCommitments

Threestepprocess:Inventory+LIFOreserveDeferredtaxpayable+[LIFOreservexTaxrate]Retainedearnings+[LIFOreservex(1-Taxrate)]

LIFOreserveistheamountbywhichcurrentcostexceedsreportedcostofLIFOinventoriesInventoriesAnalyzingInventories—RestatementofLIFOtoFIFO

(1)CompaniesmaintainLIFOinventoriesinseparatecostpools.(2)Wheninventoryquantitiesarereduced,eachcostlayerismatchedagainstcurrentsellingprices.(3)Inperiodsofrisingprices,dippingintolowercostlayerscaninflateprofits.InventoriesLIFOLiquidationsCampbellSoupBalanceSheetAdjustment—usingananalyticalentry: Inventories 89.6 DeferredTaxPayable 30.5 RetainedEarnings 59.1

CampbellSoupIncomeStatementAdjustment:

Year11 UnderLIFO Difference UnderFIFO BeginningInventory $819.8 $84.6 $904.4+Purchases(P)c P ---- P--Endinginventory (706.7) (89.6) (796.3)= Costofgoodssold $P+113.1 $ (5.0) $P+108.1InventoriesAnalyzingInventories—RestatementofLIFOtoFIFOInvestmentsecurities(alsocalledmarketablesecurities)areoftwotypes:DebtSecurities?GovernmentorcorporatedebtobligationsEquitySecurities?Corporatestockthatisreadilymarketable.InvestmentSecuritiesCompositionHeld-to-MaturityControllingInterest(above50%holding)ClassificationInvestmentSecuritiesInvestmentSecuritiesDebtSecuritiesEquitySecuritiesAvailable-for-SaleTradingSignificantInfluence(between20%and50%holding)NoInfluence(below20%holding) -Trading -Available-for-SaleInvestmentSecuritiesAccountingforDebtSecuritiesAccountingBalanceSheetIncomeStatementCategoryDescriptionUnrealizedGains/LossesOtherTradingSecuritiesacquiredmainlyforshort-termortradinggains(usuallylessthanthreemonths)FairValueRecognizeinnetincomeRecognizerealizedgains/lossesandinterestincomeinnetincomeAvailable-for-SaleSecuritiesneitherheldfortradingnorheld-to-maturityFairValueNotrecognizedinnetincome,butrecognizedincomprehensiveincomeRecognizerealizedgains/lossesandinterestincomeinnetincomeHeld-to-MaturitySecuritiesacquiredwithboththeintentandabilitytoholdtomaturityAmortizedCostNotrecognizedineithernetincomeorcomprehensiveincomeRecognizerealizedgains/lossesandinterestincomeinnetincomeInvestmentSecuritiesAccountingforTransfersbetweenSecurityClasses

Transfer

AccountingEffectonAssetValueinBalanceSheet

EffectonIncomeStatement

From

ToTradingAvailable-for-Sale

Noeffect

UnrealizedgainorlossondateoftransferincludedinnetincomeAvailable-for-SaleTrading

Noeffect

Unrealizedgainorlossondateoftransferincludedinnetincome

Available-for-Sale

Held-to-Maturity

Noeffectattransfer;however,assetreportedat(amortized)costinsteadoffairvalueatfuturedates

Unrealizedgainorlossondateoftransferincludedincomprehensiveincome

Held-to-MaturityAvailable-for-Sale

Assetreportedatfairvalueinsteadof(amortized)costUnrealizedgainorlossondateoftransferincludedincomprehensiveincome

InvestmentSecuritiesClassificationandAccountingforEquitySecurities

Category

NoInfluence

SignificantInfluence

ControllingInterest

Available-for-Sale

Trading

Ownership

Lessthan20%

Lessthan20%

Between20%and50%

About50%Purpose

Long-orintermediate-terminvestmentShort-terminvestmentortrading

Degreeofbusinesscontrol

Fullbusinesscontrol

ValuationBasis

Fairvalue

Fairvalue

Equitymethod

Consolidation

BalanceSheetAssetValue

Fairvalue

Fairvalue

Acquisitioncostadjustedforproportionateshareofinvestee’sretainedearningsandappropriateamortization

Consolidatedbalancesheet

IncomeStatement:UnrealizedGains

Incomprehensiveincome

Inincome

Notrecognized

Notrecognized

IncomeStatement:OtherIncomeEffects

Recognizedividendsandrealizedgainsandlossesinincome

Recognizedividendsandrealizedgainsandlossesinincome

Recognizeproportionateshareofinvestee’snetincomelessappropriateamortizationinincome

Consolidatedincomestatement

Atleastthreemainobjectives:toseparateoperatingfrominvesting(and financing)performancetoevaluateinvestmentperformanceand risktoanalyzeaccountingdistortionsdueto accountingrulesand /orearningsmanagement involvinginvestment securitiesAnalyzingInvestmentSecuritiesInvestmentSecuritiesDeterminewhetherinvestmentsecurities(andrelatedincomestreams)areinvestingoroperatinginnature—basedonanassessmentofwhethereachinvestmentisstrategicormadepurelyforthepurposeofinvestmentRemoveallgains(losses)relatingtoinvestingactivities—includingdividends,interestincome,andrealizedandunrealizedgainsandlosses—whenevaluatingtheoperatingperformanceofacompanySeparateoperatingandnon-operatingassetswhendeterminingoperatingreturnoninvestment

SeparatingOperatingfromInvestingAssetsandPerformanceInvestmentSecuritiesAnalyzingAccountingDistortionsfromInvestmentSecuritiesInvestmentSecuritiesPotentialaccountingdistortionsananalystmustbealertto:? Classificationbasedonintent? Opportunitiesforgainstrading? Liabilitiesrecognizedatcost? Inconsistentdefinitionofequity securities

AuditorsDerivativeSecuritiescommoditypriceriskforeigncurrencyriskinterestrateriskBackgroundMarketrisksDerivativeSecuritiesHedgesarecontractsthatseektoinsulatecompaniesfrommarketrisks—securitiessuchasfutures,options,andswapsarecommonlyusedashedges

Derivativesecurities,orsimplyderivatives,arecontractswhosevalueisderivedfromthevalueofanotherassetoreconomicitemsuchasastock,bond,commodityprice,interestrate,orcurrencyexchangerate

—theycanexposecompaniestoconsiderableriskbecauseitcanbedifficulttofindaderivativethatentirelyhedgestherisksorbecausethepartiestothederivativecontractfailtounderstandtheriskexposures

BackgroundDerivativeSecuritiesDerivativeisacontractpossessingeachofthefollowingcharacteristics: ? Oneormoreunderlyingindexesandoneormorenotionalamounts (and/orpayments)—theunderlyingindexesandthenotionalamounts determinethesettlementamount,ifany. ? Noinitialnetinvestmentoraninitialnetinvestmentlessthanthat requiredforanormaltransactionyieldingsimilarresponsesto marketriskchanges. ? Permitsanetsettlement.

Underlyingindex,orsimplyunderlying(alsocalledaprimitive),isthemaindriverofderivativevalue--itcanbeanyeconomicvariablesuchasacommodityprice,securityprice,index,interestrate,orexchangerateNotionalamountisthenumberofunits—expressedinfigures,weight,volume,dollars,orotherunitmeasure—asspecifiedinthecontractNetsettlementisacashresolutionforthecontractingpartiesinlieuofsettlingupinfullamounts(orquantities)DefinitionsDerivativeSecuritiesClassificationofDerivativesDerivativesHedge SpeculativeFairValueHedgeCashFlowHedgeForeignCurrencyHedgeFairValueHedgeHedgeofNetInvestmentinForeignOperationCashFlowHedgeDerivativeSecuritiesAccountingforDerivatives

DerivativeBalanceSheetIncomeStatementSpeculativeDerivativerecordedatfairvalueUnrealizedgainsandlossesincludedinincomeFairvaluehedgeBothderivativeandhedgedassetand/orliabilityrecordedatfairvalueUnrealizedgainsandlossesonbothderivativeandhedgedassetand/orliabilityincludedinincomeCashflowhedgeDerivativerecordedatfairvalue(offsetbyaccumulatedcomprehensiveincome)Unrealizedgainsandlossesoneffectiveportionofderivativearerecordedinothercomprehensiveincomeuntilsettlementdate,afterwhichtransferredtoincome;unrealizedgainsandlossesontheineffectiveportionofderivativeareincludedinincomeForeigncurrencyfairvaluehedgeSameasfairvaluehedgeSameasfairvaluehedgeForeigncurrencycashflowhedgeSameascashflowhedgeSameascashflowhedgeForeigncurrencyhedgeofnetinvestmentinforeignoperationDerivative(andcumulativeunrealizedgainorloss)recordedatfairvalue(partofcumulativetranslationadjustmentinaccumulatedcomprehensiveincome)UnrealizedgainsandlossesreportedinothercomprehensiveincomeaspartoftranslationadjustmentDerivativeSecuritiesIdentifyObjectivesforUsingDerivatives—riskassociatedwithderivativesismuchhigherforspeculationthanforhedging;manycompaniesimplicitlyspeculatewithderivatives

RiskExposureandEffectivenessofHedgingStrategies—evaluatetheunderlyingrisks,theriskmanagementstrategy,theactivitiestohedgeitsrisks,andtheeffectivenessofhedgingoperations;alsoconsidercounterpartyrisk

TransactionSpecificversusCompanywideRiskExposure—evaluatecompanywideeffectsofderivatives;hedgingspecificriskexposurestotransactions,commitments,assets,and/orliabilitiesdoesnotnecessarilyensurehedgingofcompanywiderisk

InclusioninOperatingorNonoperatingIncome—totheextentderivativesarehedges,thenunrealizedandrealizedgainsandlossesshouldbeexcludedfromoperatingincomeandtheirfairvaluesshouldbeexcludedfromoperatingassetsAnalysisofDerivativesLong-LivedAssetIntroductionLong-livedassets—resourcesorclaimstoresourcesareusedtogeneraterevenues(orreducecosts)inthelongrunDefinitionsTangiblefixedassetssuchasproperty,plant,andequipmentDeferredchargessuchasresearchanddevelopment(R&D)expenditures,andnaturalresourcesIntangibleassetssuchaspatents,trademarks,copyrights,andgoodwillLong-LivedAssetIntroductionCapitalization—processofdeferringacostthatisincurredinthecurrentperiodandwhosebenefitsareexpectedtoextendtooneormorefutureperiods

Foracosttobecapitalized,itmustmeeteachofthefollowingcriteria:

?Itmustarisefroma pasttransactionorevent

?Itmustyieldidentifiableand reasonablyprobablefuturebenefits

?Itmustallowowner(restrictive) controloverfuturebenefitsCapitalizationLong-LivedAssetIntroductionAllocation—processofperiodicallyexpensingadeferredcost(asset)tooneormorefutureexpectedbenefitperiods;determinedbybenefitperiod,salvagevalue,andallocationmethod

Terminology ?Depreciationfortangiblefixed assets ?Amortizationforintangibleassets ?DepletionfornaturalresourcesAllocationLong-LivedAssetIntroductionImpairment—processofwritingdownassetvaluewhenitsvalue-in-usefallsbelowitscarrying(book)value

Twodistortionsarisefromimpairment:

?Conservativebiasesdistort long-livedassetvaluation becauseassetsarewritten downbutnotwrittenup

? Earningsmanagement opportunitiesincreaseina trade-offformoreuseful balancesheets

ImpairmentTangibleExpectedtoBenefitFuturePeriodsActivelyUsedinOperationsProperty,PlantandEquipmentPlantAssets&NaturalResourcesPlantAssetsPlantAssets&NaturalResourcesPlantAssetsHistoricalcostprincipleisusedforvaluation—justificationincludes:

?

Conservatism—innotanticipating subsequentreplacementcosts

?

Accountability—indollaramountsfor management

?

Objectivity—incost determinationAcquisition

costAcquisitioncost

excludes

financingchargesand

cashdiscounts.

AllexpendituresneededtopreparetheassetforitsintendedusePurchase

pricePlantAssets&NaturalResourcesPlantAssetsCostingRuleTotalcost,

including

explorationand

development,

ischargedto

depletionexpense

overperiods

benefited.Extractedfrom

thenatural

environment

andreported

atcostless

accumulated

depletion.Examples:oil,coal,goldPlantAssets&NaturalResourcesNaturalResourcesNaturalresources(wastingassets)—rightstoextractorconsumenaturalresources

Valuationemphasizesobjectivityofhistoricalcost,theconservatismprinciple,andaccountingforthemoniesinvested;representacompany’scapacitytoproducegoodsandservices

Limitationsofhistoricalcosts:

?Balancesheetsdonotpurporttoreflectmarketvalues

?Notespeciallyrelevantinassessingreplacementvalues

?Notcomparableacrosscompanies

?Notparticularlyusefulinmeasuringopportunitycosts

?Collectionofexpendituresreflectingdifferentpurchasingpower

PlantAssets&NaturalResourcesValuationAnalysisDepreciationisthe

processofallocatingthecostofaplantassettoexpenseintheaccountingperiodsbenefitingfromitsuse.CostAllocationAcquisition

Cost(Unused)BalanceSheet(Used)IncomeStatementExpenseDepreciationPlantAssets&NaturalResources

Thecalculationofdepreciationrequiresthreeamountsforeachasset:

Cost.SalvageValue.UsefulLife.DepreciationMethodPlantAssets&NaturalResourcesFactorsinComputingDepreciationThemajorityofcompaniesusethestraight-linemethod.PlantAssets&NaturalResourcesComparingDepreciationMethodsCost-SalvageValue

Usefullifeinperiods

DepreciationExpenseperYear=SLPlantAssets&NaturalResourcesComparingDepreciationMethodsStraight-LineMethodFacts:Assetcost=$110,000;Usefullife=10years;Salvagevalue=$10,000Endof Accumulated Book

Year Depreciation Depreciation Value $110,0001 $10,000 $10,000 100,0002 10,000 20,000 90,000: :9 10,000 90,000 20,00010 10,000 100,000 10,000PlantAssets&NaturalResourcesStraight-LineDepreciationIllustrationStep1:Step2:Double-declining-

balancerate=2×Straight-line

depreciationrateStep3:Depreciation

expense=Double-declining-

balancerate×Beginningperiod

bookvalueIgnoressalvagevalueStraight-line

depreciationrate=100%UsefullifePlantAssets&NaturalResourcesDouble-Declining-BalanceMethodPlantAssets&NaturalResourcesDouble-Declining-Balance(andSYD)DepreciationIllustration

Depreciation

CumulativeAmount Double- Sum-of-the Double- Sum-of-the

Year Declining Years’-Digits Declining Years’-Digits 1 $22,000 $18,182 $22,000 $18,182 2 17,600 16,364 39,600 34,546 3 14,080 14,545 53,680 49,091 4 11,264 12,727 64,944 61,818 5 9,011 10,909 73,955 72,727 6 7,209 9,091 81,164 81,818 7 5,767 7,273 86,931 89,091 8 4,614 5,455 91,545 94,546 9* 4,228 3,636 95,773 98,182 10* 4,228 1,818 100,000 100,000*revertstostraight-lineDepreciationPerUnit=Cost-SalvageValueTotalUnitsofProductionStep1:Step2:DepreciationExpense=DepreciationPerUnit×UnitsProduced

inPeriodActivity(Units-of-Production)MethodPlantAssets&NaturalResourcesTotalcost,

including

explorationand

development,

ischargedto

depletionexpense

overperiods

benefited.Extractedfrom

thenatural

environment

andreported

atcostless

accumulated

depletion.Examples:oil,coal,goldPlantAssets&NaturalResourcesDepletioniscalculatedusingtheunits-of-productionmethod.Unitdepletionrateiscalculatedasfollows:TotalUnitsofCapacityCost–SalvageValuePlantAssets&NaturalResourcesDepletionofNaturalResourcesTotaldepletioncostforaperiodis:UnitDepletionRateNumberofUnitsExtractedinPeriod×Total

depletion

costUnsold

InventoryCostof

goodssoldPlantAssets&NaturalResourcesDepletionofNaturalResourcesPlantAssets&NaturalResourcesAnalyzingDepreciationandDepletion? Assessreasonablenessofdepreciablebase,usefullife,and allocationmethod?Reviewanyrevisionsofusefullives?Evaluateadequacyofdepreciation—ratioofdepreciationtototal assetsortoanothersize-relatedfactors?Analyzeplantassetage—measuresincludeAveragetotallifespan = Grossplantandequipmentassets/ Currentyeardepreciationexpense.Averageage = Accumulateddepreciation/Current yeardepreciationexpense.Averageremaininglife = Netplantandequipmentassets/ Currentyeardepreciationexpense. Averagetotallifespan = Averageage+Averageremaininglife(thesemeasuresalsoreflectonprofitmarginsandfinancingrequirements)Noncurrentassets

withoutphysical

substance.Usefullifeis

oftendifficult

todetermine.Usuallyacquired

foroperational

use.Intangible

AssetsOftenprovide

exclusiverights

orprivileges.IntangibleAssets

PatentsCopyrightsLeaseholdsLeasehold

ImprovementsGoodwillTrademarksand

TradeNames

Recordatcost,includingpurchaseprice,legal