Upload
toufiq-ait
View
220
Download
0
Embed Size (px)
Citation preview
8/9/2019 financial statement analysis chapter 10 ppp
1/32
Cambridge Business Publishers, 2013
FINANCIAL STATEMENT
ANALYSIS & VALUATIONThird Edition
Peter D. Mary Lea Gregory A. Xiao-Jun
Easton McAnally Sommers Zhang
8/9/2019 financial statement analysis chapter 10 ppp
2/32
Cambridge Business Publishers, 2013
Module 10:Module 10:
Of-Balance-SheetOf-Balance-SheetFinancingFinancing
8/9/2019 financial statement analysis chapter 10 ppp
3/32
Cambridge Business Publishers, 2013
Of-Balance SheetOf-Balance Sheet
FinancingFinancing
Of-balance sheetOf-balance sheetfnancing means thatfnancing means thateither assets or liabilities, or both, are noteither assets or liabilities, or both, are not
reported on the ace o the balance sheet.reported on the ace o the balance sheet.
Managers generall belie!e that "eepingManagers generall belie!e that "eeping
such assets and liabilities o# the balancesuch assets and liabilities o# the balancesheet impro!es mar"et perception o theirsheet impro!es mar"et perception o their
operating perormance and fnancialoperating perormance and fnancial
condition.condition.
$mpirical e!idence suggests that analsts$mpirical e!idence suggests that analsts
ad%ust balance sheets to include assetsad%ust balance sheets to include assets
and liabilities that managers e&clude.and liabilities that managers e&clude.
8/9/2019 financial statement analysis chapter 10 ppp
4/32
Cambridge Business Publishers, 2013
LeasingLeasing
' lease is a contract bet(een the o(ner' lease is a contract bet(een the o(nero an asset )the lessor* and the parto an asset )the lessor* and the partdesiring to use that asset )the lessee*.desiring to use that asset )the lessee*.
+enerall, leases pro!ide or the+enerall, leases pro!ide or the
ollo(ing termsollo(ing terms1.1. -he lessor allo(s the lessee the unrestricted-he lessor allo(s the lessee the unrestricted
right to use the asset during the lease term.right to use the asset during the lease term.
2.2. -he lessee agrees to ma"e periodic paments-he lessee agrees to ma"e periodic pamentsto the lessor and to maintain the asset.to the lessor and to maintain the asset.
3.3. -itle to the asset remains (ith the lessor,-itle to the asset remains (ith the lessor,(ho usuall reta"es possession o the asset(ho usuall reta"es possession o the assetat the conclusion o the lease.at the conclusion o the lease.
8/9/2019 financial statement analysis chapter 10 ppp
5/32
Cambridge Business Publishers, 2013
Capital vs. OperatingCapital vs. Operating
LeasesLeases
+''P identifes or t(o di#erent+''P identifes or t(o di#erent
approaches in the reporting o leasesapproaches in the reporting o leases
b the lesseeb the lessee
Capital lease ethodCapital lease ethod--both theboth the
lease asset and the lease liabilit arelease asset and the lease liabilit are
reported on the balance sheet.reported on the balance sheet.
Operating lease ethodOperating lease ethod-- neitherneitherthe lease asset nor the lease liabilitthe lease asset nor the lease liabilit
is on the balance sheet.is on the balance sheet.
8/9/2019 financial statement analysis chapter 10 ppp
6/32
Cambridge Business Publishers, 2013
Capital vs. OperatingCapital vs. Operating
LeasesLeases
8/9/2019 financial statement analysis chapter 10 ppp
7/32Cambridge Business Publishers, 2013
Operating LeasesOperating Leases
Conseuences or the lesseeConseuences or the lessee
1.1. -he lease asset is not reported on the balance sheet / net-he lease asset is not reported on the balance sheet / netoperating asset turno!er )'-* is higher.operating asset turno!er )'-* is higher.
2.2. -he lease liabilit is not reported on the balance sheet /-he lease liabilit is not reported on the balance sheet /fnancial le!erage is impro!ed.fnancial le!erage is impro!ed.
3.3. ithout analtical ad%ustments )see later section onithout analtical ad%ustments )see later section on
capitaliation o operating leases*, the portion o 4$capitaliation o operating leases*, the portion o 4$deri!ed rom operating acti!ities )4'* appears higher,deri!ed rom operating acti!ities )4'* appears higher,(hich impro!es the percei!ed ualit o the compan5s(hich impro!es the percei!ed ualit o the compan5s4$.4$.
6.6. 7uring the earl ears o the lease term, rent e&pense7uring the earl ears o the lease term, rent e&pense
reported or an operating lease is less than thereported or an operating lease is less than thedepreciation and interest e&pense reported or a capitaldepreciation and interest e&pense reported or a capitallease. -his means that net income is higher in those earllease. -his means that net income is higher in those earl
ears (ith an operating lease. 8urther, i the compan isears (ith an operating lease. 8urther, i the compan isgro(ing and continuall adding operating lease assets, thegro(ing and continuall adding operating lease assets, thele!el o profts (ill continue to remain higher during thele!el o profts (ill continue to remain higher during the
gro(th period.gro(th period.
8/9/2019 financial statement analysis chapter 10 ppp
8/32Cambridge Business Publishers, 2013
!elta"s!elta"s
FootnoteFootnote
!isclosu!isclosures o#res o#
LesseesLessees
C i li i O iC i li i O i
8/9/2019 financial statement analysis chapter 10 ppp
9/32Cambridge Business Publishers, 2013
Capitali$ing OperatingCapitali$ing Operating
LeasesLeases
#or %nal&sis 'urposes#or %nal&sis 'urposes1.1. 7etermine the discount rate.7etermine the discount rate.
2.2. Compute the present !alue oCompute the present !alue o
uture operating lease paments.uture operating lease paments.
3.3. 'd%ust the fnancials to include the'd%ust the fnancials to include the
present !alue o the lease assetpresent !alue o the lease asset
and lease liabilit.and lease liabilit.
8/9/2019 financial statement analysis chapter 10 ppp
10/32Cambridge Business Publishers, 2013
!elta"s (plicit !iscount!elta"s (plicit !iscount
)ate)ate
8/9/2019 financial statement analysis chapter 10 ppp
11/32Cambridge Business Publishers, 2013
ap a $a on o e a sap a $a on o e a sOperating Leases on theOperating Leases on the
Balance SheetBalance Sheet
8/9/2019 financial statement analysis chapter 10 ppp
12/32Cambridge Business Publishers, 2013
%d*ustents to the%d*ustents to the
(ncoe Stateent(ncoe Stateent
4emo!e rent e&pense rom operating4emo!e rent e&pense rom operating
e&pense.e&pense.
'dd depreciation e&pense rom the'dd depreciation e&pense rom the
lease assets to operating e&pense andlease assets to operating e&pense andadd interest e&pense rom the leaseadd interest e&pense rom the lease
obligation as a nonoperating e&pense.obligation as a nonoperating e&pense.
8/9/2019 financial statement analysis chapter 10 ppp
13/32Cambridge Business Publishers, 2013
Capitali$ation o# !elta"sCapitali$ation o# !elta"s
Operating LeasesOperating Leases
8/9/2019 financial statement analysis chapter 10 ppp
14/32Cambridge Business Publishers, 2013
'ensions'ensions
+enerall t(o tpes o plans+enerall t(o tpes o plans
!e+ned contribution plan.!e+ned contribution plan.-his plan has-his plan has
the compan ma"e periodic contributions tothe compan ma"e periodic contributions to
an emploee5s account, and man plansan emploee5s account, and man plansreuire an emploee matching contribution.reuire an emploee matching contribution.
!e+ned bene+t plan.!e+ned bene+t plan.-his plan has the-his plan has the
compan ma"e periodic paments to ancompan ma"e periodic paments to an
emploee ater retirement.emploee ater retirement.
8/9/2019 financial statement analysis chapter 10 ppp
15/32
Cambridge Business Publishers, 2013
%ccounting #or%ccounting #or
!e+ned Contribution 'lans!e+ned Contribution 'lans
8rom an accounting standpoint,8rom an accounting standpoint,
defned contribution plans o#er nodefned contribution plans o#er no
particular problems.particular problems. -he contribution is recorded as an-he contribution is recorded as an
e&pense in the income statemente&pense in the income statement
(hen paid or accrued.(hen paid or accrued.
8/9/2019 financial statement analysis chapter 10 ppp
16/32
Cambridge Business Publishers, 2013
o ccoun ng ssueso ccoun ng ssues)elated to !e+ned Bene+t)elated to !e+ned Bene+t
'lans'lans1.1. -he appropriate balance sheet presentation o-he appropriate balance sheet presentation othe pension in!estments and obligation.the pension in!estments and obligation. -he pension standard allo(s companies to report the-he pension standard allo(s companies to report the
netnetpension liabilit on their balance sheet.pension liabilit on their balance sheet. 9nderunded plans are reported on the balance9nderunded plans are reported on the balance
sheet as a long/term liabilit.sheet as a long/term liabilit. !erunded plans are reported as a long/term asset.!erunded plans are reported as a long/term asset.
2.2. -he treatment o :uctuations in pension-he treatment o :uctuations in pensionin!estments and obligations in the incomein!estments and obligations in the incomestatement.statement.
-he 8';B allo(s companies to report pension-he 8';B allo(s companies to report pensionincome based onincome based on expectedexpectedlong/term returns onlong/term returns onpension in!estments )rather than actual in!estmentpension in!estments )rather than actual in!estmentreturns*, and to deer the recognition o unrealiedreturns*, and to deer the recognition o unrealiedgains and losses on both pension in!estments andgains and losses on both pension in!estments and
pension obligations.pension obligations.
8/9/2019 financial statement analysis chapter 10 ppp
17/32
Cambridge Business Publishers, 2013
'lan %ssets and 'BO'lan %ssets and 'BO
CoputationsCoputations
8/9/2019 financial statement analysis chapter 10 ppp
18/32
Cambridge Business Publishers, 2013
Balance Sheet 'resentationBalance Sheet 'resentation
8/9/2019 financial statement analysis chapter 10 ppp
19/32
Cambridge Business Publishers, 2013
'BO Coponents'BO Coponents
Service costService cost< the increase in the< the increase in thepension obligation due to emploeespension obligation due to emploees(or"ing another ear or the(or"ing another ear or the
emploer.emploer. (nterest cost(nterest cost< the increase in the< the increase in the
pension obligation due to the accrualpension obligation due to the accrualo an additional ear o interest.o an additional ear o interest.
Bene+ts paid to eplo&eesBene+ts paid to eplo&ees< the< thecompan5s obligation is reduced ascompan5s obligation is reduced asbenefts are paid to emploees.benefts are paid to emploees.
8/9/2019 financial statement analysis chapter 10 ppp
20/32
Cambridge Business Publishers, 2013
'ension /pense'ension /pense
8/9/2019 financial statement analysis chapter 10 ppp
21/32
Cambridge Business Publishers, 2013
!elta"s Funded Status!elta"s Funded Status
8/9/2019 financial statement analysis chapter 10 ppp
22/32
Cambridge Business Publishers, 2013
!elta"s 'ension /pense!elta"s 'ension /pense
8/9/2019 financial statement analysis chapter 10 ppp
23/32
Cambridge Business Publishers, 2013
Cash Flo (plicationsCash Flo (plications
ne application o the pension ootnoteis to assess the li"elihood that thecompan (ill be reuired to increase itscash contributions to the pension plan.
8/9/2019 financial statement analysis chapter 10 ppp
24/32
Cambridge Business Publishers, 2013
'ro+t (plications'ro+t (plications
8/9/2019 financial statement analysis chapter 10 ppp
25/32
Cambridge Business Publishers, 2013
o 'ensions Con#oundo 'ensions Con#ound
(ncoe %nal&sis(ncoe %nal&sis
8/9/2019 financial statement analysis chapter 10 ppp
26/32
Cambridge Business Publishers, 2013
lobal %ccountinglobal %ccounting
LeasesLeases--
=84; lease standards currentl allo(=84; lease standards currentl allo(or operating leases, but the standards are suchor operating leases, but the standards are such
that it is !er di#icult or a lease agreement tothat it is !er di#icult or a lease agreement to
uali as an operating lease.uali as an operating lease.
'ensions'ensions-- 9.;. +''P permits deerral o9.;. +''P permits deerral oactuarial gains and losses and then amortiesactuarial gains and losses and then amorties
them to net income o!er time. =84; companiesthem to net income o!er time. =84; companies
can recognie all actuarial gains and losses incan recognie all actuarial gains and losses in
comprehensi!e income in the ear the occur.comprehensi!e income in the ear the occur.
Special 'urpose ntitiesSpecial 'urpose ntities-- 9nder 9.;. +''P,9nder 9.;. +''P,the primar benefciar is reuired to consolidatethe primar benefciar is reuired to consolidate
the ;P$. =84; ocuses on the general concept othe ;P$. =84; ocuses on the general concept o
>control? to determine i the ;P$ is consolidated.>control? to determine i the ;P$ is consolidated.
8/9/2019 financial statement analysis chapter 10 ppp
27/32
Cambridge Business Publishers, 2013
Special 'urpose ntitiesSpecial 'urpose ntities
2S's3: %sset Securiti$ation2S's3: %sset Securiti$ation
' sponsoring compan orms a subsidiar that' sponsoring compan orms a subsidiar thatis capitalied entirel (ith euit@ this createsis capitalied entirel (ith euit@ this createsaa bankruptcy remote transactionbankruptcy remote transaction, (hich, (hichreduces the li"elihood o ban"ruptc orreduces the li"elihood o ban"ruptc or
subseuent in!estors*.subseuent in!estors*. -he subsidiar purchases assets rom the-he subsidiar purchases assets rom the
sponsoring compan and sells them to asponsoring compan and sells them to asecuritiation )o#/balance/sheet* trust )thesecuritiation )o#/balance/sheet* trust )the
;P$*, (hich purchases the assets using;P$*, (hich purchases the assets usingborro(ed unds.borro(ed unds. Cash :o(s rom the acuired assets are usedCash :o(s rom the acuired assets are used
b the ;P$ to repa its debt.b the ;P$ to repa its debt.
8/9/2019 financial statement analysis chapter 10 ppp
28/32
Cambridge Business Publishers, 2013
Special 'urpose ntitiesSpecial 'urpose ntities
2S's3: Ford Motor Credit2S's3: Ford Motor Credit
8/9/2019 financial statement analysis chapter 10 ppp
29/32
Cambridge Business Publishers, 2013
Ford"s %sset Securiti$ationFord"s %sset Securiti$ation
) ti l # S') ti l # S'
8/9/2019 financial statement analysis chapter 10 ppp
30/32
Cambridge Business Publishers, 2013
)ationale #or S')ationale #or S'
FinancingFinancing
Loer cost o# capital.Loer cost o# capital. ;P$s canpro!ide lo(er cost fnancing or acompan.
Li4uidit&.Li4uidit&. ;ecuritiation o assetspro!ides a consistent cash :o( source.
8/9/2019 financial statement analysis chapter 10 ppp
31/32
Cambridge Business Publishers, 2013
Consolidation o# S'sConsolidation o# S's
+enerall, an entit that+enerall, an entit that lac"s independence rom the sponsoringlac"s independence rom the sponsoring
compancompan lac"s su#icient capital to conduct itslac"s su#icient capital to conduct its
operations apart rom the sponsoringoperations apart rom the sponsoring
compancompanmust be consolidated (ith (hate!er entitmust be consolidated (ith (hate!er entitbears the greatest ris" o loss and standsbears the greatest ris" o loss and standsto reap the greatest re(ards rom itsto reap the greatest re(ards rom its
acti!ities.acti!ities.
-he e#ect o consolidation o ;P$s is to-he e#ect o consolidation o ;P$s is to
report both the assets and liabilities on thereport both the assets and liabilities on the
consolidated balance sheet.consolidated balance sheet.
8/9/2019 financial statement analysis chapter 10 ppp
32/32
nd Module 10nd Module 10