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#cfa-level-1 #fra-introduction #reading-22-financial-statement-analysis-intro #study-session-7

2nd part

In evaluating financial reports, analysts typically have a specific economic decision in mind.

Examples of these decisions include the following:

  • Extending credit to a customer.

  • Examining compliance with debt covenants or other contractual arrangements.

  • Assigning a debt rating to a company or bond issue.

  • Valuing a security for making an investment recommendation to others.

  • Forecasting future net income and cash flow.

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2. SCOPE OF FINANCIAL STATEMENT ANALYSIS
ing, and financing decisions but do not necessarily rely on analysis of related financial statements. They have access to additional financial information that can be reported in whatever format is most useful to their decision.) <span>In evaluating financial reports, analysts typically have a specific economic decision in mind. Examples of these decisions include the following: Evaluating an equity investment for inclusion in a portfolio. Evaluating a merger or acquisition candidate. Evaluating a subsidiary or operating division of a parent company. Deciding whether to make a venture capital or other private equity investment. Determining the creditworthiness of a company in order to decide whether to extend a loan to the company and if so, what terms to offer. Extending credit to a customer. Examining compliance with debt covenants or other contractual arrangements. Assigning a debt rating to a company or bond issue. Valuing a security for making an investment recommendation to others. Forecasting future net income and cash flow. These decisions demonstrate certain themes in financial analysis. In general, analysts seek to examine the past and current performance and financial position of a


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