Friday, April 13, 2012

Quality of Financial Statements

 Index of concepts
  1. Aa to Az
  2. Ba to Bz
  3. Ca to Cz
  4. Da to Dz  
  5. Ea to Ez
  6. Fa to Fz
  7. Ga to Gz
  8. Ha to Hz
  9. Ia to Iz
11. Ka to Kz
24. Xa to Xz

Subject: Investment Analysis

Chapter/Topic: Financial Statement Analysis


Concept Definition and Explanation

 Analysts do talk of quality of a firm's earnings in the reports. A quality financial statement is good reflection of reality of the performance of business in a period. Sometimes companies use accounting tricks and accounting policy changes to make the firm's appearance stronger than it really is. Analysts find out such changes and bring them to the notice of the investors and comment that reported earnings are not quality earnings.
High-quality balance sheets typically have
    Conservative use of debt
    Assets with market value greater than book
    No liabilities off the balance sheet
High-quality income statements reflect repeatable earnings
         Gains from nonrecurring items are highlighted so that they can be be ignored when examining earnings
      High-quality earnings result from the use of conservative accounting principles that do not overstate revenues or understate costs
Reilly, Frank and Keith Brown, Investment Analysis and Portfolio Management, 7th Edition, Thomson-South Western, 2003



Related Knols




Research Papers

Heidi Vander Bauwhede, "What Factors Influence Financial Statement Quality: A Framework and Some Empirical Evidence",

Concept Articles



Related Article Directories



Original knol - 863

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