Analyse Financière

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Analyse Financière

Transcript of Analyse Financière

  • H O W T O R E A D A

    FINANCIALREPORT

  • INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . INSIDE FRONT COVER

    HOW TO READ A FINANCIAL REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

    A FEW WORDS BEFORE BEGINNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

    CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 4

    THE BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

    JUST WHAT DOES THE BALANCE SHEET SHOW? . . . . . . . . . . . . . . . . . . . . 22

    THE INCOME STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

    ANALYZING THE INCOME STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

    THE STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY . . . . . . . . . . . . . 36

    THE STATEMENT OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

    ADDITIONAL DISCLOSURES AND AUDIT REPORTS . . . . . . . . . . . . . . . . . . . 40

    THE LONG VIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

    SELECTING STOCKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

    GLOSSARY OF SELECTED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

    INTRODUCTIONKnown from Wall Street to Main Streetand worldwideMerrill Lynch is a globalleader in the financial services industry. As a public service, Merrill Lynch wants to sharesome of its expertise in, and knowledge of, financial reporting through this booklet.

    We hope this booklet will serve as a valuable resource to help readers learn how to readand analyze a companys annual report. Through it, readers can learn that an annualreport is not just a jumble of numbers and mind-numbing data. Read with understandingand analytical insight, the numbers and data in an annual report can tell an interesting,meaningful and fascinating story.

    TABLE OF CONTENTS

  • HOW TO READ A FINANCIAL REPORT

    1

    GOALS OF THIS BOOKLETAn annual report is unfamiliar terrain to many people. For those who are notaccountants, analysts or financial planners,this booklet can help them to better under-stand such reports and possibly becomemore informed investors.

    This booklet was written and designed to help educate and guide its readers so they might:

    n Better understand the data included infinancial reports and how to analyze it.

    n Learn more about companies that offeremployment or provide investmentopportunities.

    A good starting point for achieving thesegoals is to become familiar with the maincomponents of a companys annual report.

    Please Note: Highlighted throughout thisbooklet are key selected terms and defini-tions as a reference for readers. See alsothe Glossary of Selected Terms in theback of this booklet.

    COMPONENTS OF AN ANNUAL REPORTMost annual reports have three sections:(1) The Letter to Shareholders, (2) theBusiness Review and (3) the FinancialReview. Each section serves a unique function:

    n The Letter to Shareholders gives abroad overview of the companys business and financial performance.

    n The Business Review summarizes a companys recent developments,trends and objectives.

    n The Financial Review presents a companys business performance in

    dollar terms and consists of theManagements Discussion andAnalysis and Audited FinancialStatements. It may also contain supplemental financial information.

    In Managements Discussion and Analysis(MD&A), a companys managementexplains all significant changes from year to year in the financial statements.Although presented mainly in narrative format, the MD&A may also include chartsand graphs highlighting the year-to-yearchanges. The companys operating results,financial position and cash flows arenumerically captured and presented in the audited financial statements.

    The financial statements generally consistof the balance sheet, income statement,statement of changes in shareholdersequity, statement of cash flows and footnotes. The annual financial statementsusually are accompanied by an indepen-dent auditors report (which is why theyare called audited financial statements).An audit is a systematic examination of a companys financial statements; it is typically undertaken by a Certified PublicAccountant (CPA). The auditors reportattests to whether the financial reports arepresented fairly in keeping with generallyaccepted accounting principles, known as GAAP for short.

    Following is a brief description oroverview of the basic financial statements,including the footnotes:

    The Balance SheetThe balance sheet portrays the financialposition of the company by showing whatthe company owns and what it owes at thereport date. The balance sheet may be thought of as a snapshot, since it reportsthe companys financial position at a specific point in time.

  • 2The Income StatementOn the other hand, the income statementcan be thought of more like a motion pic-ture, since it reports on how a companyperformed during the period(s) presentedand shows whether that companys opera-tions have resulted in a profit or loss.

    The Statement of Changes in Shareholders EquityThe statement of changes in shareholdersequity reconciles the activity in the equitysection of the balance sheet from period toperiod. Generally, changes in sharehold-ers equity result from company profits or losses, dividends and/or stockissuances. (Dividends are payments toshareholders to compensate them for their investment.)

    The Statement of Cash FlowsThe statement of cash flows reports on the companys cash movements during the period(s) separating them by operating,investing and financing activities.

    The FootnotesThe footnotes provide more detailed infor-mation about the financial statements.

    This booklet will focus on the basic financial statements, described above, and the related footnotes. It will alsoinclude some examples of methods thatinvestors can use to analyze the basicfinancial statements in greater detail.Additionally, to illustrate how these con-cepts apply to a hypothetical, but realistic business, this booklet will present andanalyze the financial statements of amodel company.

    A MODEL COMPANY CALLEDTYPICALTo provide a framework for illustration, a fictional company will be used. It will be a public company (generally, onewhose shares are formally registered withthe Securities and Exchange Commission[SEC] and actively traded). A public com-pany will be used because it is required to provide the most extensive amount of information in its annual reports. Therequirements and standards for financialreporting are set by both governmentaland nongovernmental bodies. (The SEC is the major governmental body withresponsibility in this arena. The main nongovernmental bodies that set rules and standards are the FinancialAccounting Standards Board [FASB]* and the American Institute of CertifiedPublic Accountants [AICPA].)

    This fictional company will represent a typical corporation with the most com-monly used accounting and reportingpractices. Thus, the model company willbe called Typical Manufacturing Company,Inc. (or Typical, for short).

    * The FASB is the primary, authoritative private-sector body that sets financial accounting stan-dards. From time to time, these standards changeand new ones are issued. At this writing, the FASB is considering substantial changes to the currentaccounting rules in the areas of consolidations,segment reporting, derivatives and hedging,comprehensive income and earnings per share.Information regarding current, revised or newrules can be obtained by writing or calling the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT06858-5116, telephone (203) 847-0700.

    HOW TO READ A FINANCIAL REPORT

  • 3The following pages show a sample of the core or basic financial statementsa balance sheet, an income statement, a statement of changes in shareholdersequity and a statement of cash flows forTypical Manufacturing Company.

    However, before beginning to examinethese financial statements in depth, thefollowing points should be kept in mind:

    n Typicals financial statements are illus-trative and generally representative for a manufacturing company. However,financial statements in certain special-ized industries, such as banks, broker-dealers, insurance companies and pub-lic utilities, would look somewhat dif-ferent. Thats because specializedaccounting and reporting principles and practices apply in these and otherspecialized industries.

    n Rather than presenting a complete setof footnotes specific to Typical, thisbooklet presents a listing of appropriategeneric footnote data for which a read-er of financial statements should look.

    n This booklet is designed as a broad,general overview of financial reporting,not an authoritative, technical referencedocument. Accordingly, specific techni-cal accounting and financial reportingquestions regarding a persons personalor professional activities should bereferred to their CPA, accountant orqualified attorney.

    n To simplify matters, the statementsshown in this booklet do not illustrateevery SEC financial reporting rule andregulation.

    For example, the sample statements pre-sent Typicals balance sheet at two year-ends; income statements for two years;and a statement of changes in sharehold-ers equity and statement of cash flows fora one-year period. To strictly comply withSEC requirements, the report would haveincluded income statements, statements of changes in shareholders equity andstatements of cash flows for three years.Also, the statements shown here do notinclude certain additional informationrequired by the SEC. For instance, it doesnot include: (1) selected q