Analyzing Profitability Measuring Income--Incentives for Disclosure Result: Acceptable"methods, not necessarily "appropriate methods
Analyzing Profitability Measuring Income--Incentives for Disclosure Result: “Acceptable” methods, not necessarily “appropriate” methods
Analyzing Profitability Measuring Income--Diversity Across Users Financial statements are general-purpose reports serving diverse needs of many users Diversity of views implies an analysis uses income as an initial measure of profitability Use available information adjust income measurement consistent with one's objectives
Analyzing Profitability Measuring Income--Diversity Across Users • Financial statements are general-purpose reports serving diverse needs of many users • Diversity of views implies an analysis uses income as an initial measure of profitability • Use available information adjust income measurement consistent with one’s objectives
Analyzing Revenues Two-Phase Analysis of Income Analysis of income and its com ponents involves two phases 1. Analysis of accounting and its measurements Purpose: To apply knowledge of accounting to yield a measure of income, and its com ponents, consistent with the analysis objectives 2. Applying analysis tools to income(and its components) and interpreting the analytical results Purpose: To apply analysis tools to aid achieve the analysis objectives-such as income forecasting and estimating earning power
Analyzing Revenues Two-Phase Analysis of Income Analysis of income and its components involves two phases 1. Analysis of accounting and its measurements Purpose: To apply knowledge of accounting to yield a measure of income, and its components, consistent with the analysis objectives 2. Applying analysis tools to income (and its components) and interpreting the analytical results Purpose: To apply analysis tools to aid achieve the analysis objectives—such as income forecasting and estimating earning power
Analyzing Revenues Revenue sources Analysis of revenues(sales) helps address questions such as: What are the major sources of revenue? How persistent are revenue sources? How are revenues, receivables, and inventories related? > When is revenue recorded? How is revenue measured?
Analyzing Revenues Revenue Sources Analysis of revenues (sales) helps address questions such as: ➢ What are the major sources of revenue? ➢ How persistent are revenue sources? ➢ How are revenues, receivables, and inventories related? ➢ When is revenue recorded? ➢ How is revenue measured?
Analyzing Revenues Revenue sources Knowledge of major sources of revenues is important to profitability analysis Each market and product line often has its own growth pattern, profitability, and future potential Common-size analysis of revenues shows the percent of each major class of revenue to its total Graphical analysis is a useful tool to interpret the sources of revenues
Analyzing Revenues Revenue Sources ➢ Knowledge of major sources of revenues is important to profitability analysis ➢ Each market and product line often has its own growth pattern, profitability, and future potential ➢ Common-size analysis of revenues shows the percent of each major class of revenue to its total ➢ Graphical analysis is a useful tool to interpret the sources of revenues