Up-to-date information on using financial statement analysis to successfully assess company performance, from the seasoned experts at the CFA Institute Designed to help investment professionals and students effectively evaluate financial statements in today's international and volatile markets, amid an uncertain global economic climate, International Financial Statement Analysis, Second Edition compiles unparalleled wisdom from the CFA in one comprehensive volume. Written by a distinguished team of authors and experienced contributors, the book provides complete coverage of the key financial field of statement analysis. Fully updated with new standards and methods for a post crisis world, this Second Edition covers the mechanics of the accounting process; the foundation for financial reporting; the differences and similarities in income statements, balance sheets, and cash flow statements around the world; examines the implications for securities valuation of any financial statement element or transaction, and shows how different financial statement analysis techniques can provide valuable clues into a company's operations and risk characteristics. Financial statement analysis allows for realistic valuations of investment, lending, or merger and acquisition opportunities Essential reading for financial analysts, investment analysts, portfolio managers, asset allocators, graduate students, and others interested in this important field of finance Includes key coverage of income tax accounting and reporting, the difficulty of measuring the value of employee compensation, and the impact of foreign exchange rates on the financial statements of multinational corporations Financial statement analysis gives investment professionals important insights into the true financial condition of a company, and International Financial Statement Analysis, Second Edition puts the full knowledge of the CFA at your fingertips.

Table of Contents:
Foreword xvii Preface xix Acknowledgments xxiii About the CFA Institute Investment Series xxv CHAPTER 1 Financial Statement Analysis: An Introduction 1 Learning Outcomes 1 1. Introduction 1 2. Scope of Financial Statement Analysis 2 3. Major Financial Statements and Other Information Sources 7 4. Financial Statement Analysis Framework 27 4.5. Develop and Communicate Conclusions/Recommendations 30 4.6. Follow-Up 31 5. Summary 31 Problems 33 CHAPTER 2 Financial Reporting Mechanics 35 Learning Outcomes 35 1. Introduction 36 2. The Classification of Business Activities 36 3. Accounts and Financial Statements 37 4. The Accounting Process 46 5. Accruals and Valuation Adjustments 62 6. Accounting Systems 65 7. Using Financial Statements in Security Analysis 67 8. Summary 69 Appendix 2A: A Debit/Credit Accounting System 69 Problems 85 CHAPTER 3 Financial Reporting Standards 89 Learning Outcomes 89 1. Introduction 90 2. The Objective of Financial Reporting 90 3. Standard-Setting Bodies and Regulatory Authorities 93 4. Convergence of Global Financial Reporting Standards 102 5. The International Financial Reporting Standards Framework 106 6. Effective Financial Reporting 118 7. Comparison of IFRS with Alternative Reporting Systems 120 8. Monitoring Developments in Financial Reporting Standards 122 9. Summary 127 Problems 129 CHAPTER 4 Understanding Income Statements 133 Learning Outcomes 133 1. Introduction 134 2. Components and Format of the Income Statement 135 3. Revenue Recognition 140 4. Expense Recognition 152 5. Nonrecurring Items and Nonoperating Items 163 6. Earnings per Share 169 7. Analysis of the Income Statement 178 8. Comprehensive Income 183 9. Summary 186 Problems 188 CHAPTER 5 Understanding Balance Sheets 193 Learning Outcomes 193 1. Introduction 193 2. Components and Format of the Balance Sheet 194 3. Current Assets and Current Liabilities 199 4. Noncurrent Assets 210 5. Noncurrent Liabilities 222 6. Equity 224 7. Analysis of the Balance Sheet 229 8. Summary 240 Problems 242 CHAPTER 6 Understanding Cash Flow Statements 245 Learning Outcomes 245 1. Introduction 246 2. Components and Format of the Cash Flow Statement 247 3. The Cash Flow Statement: Linkages and Preparation 261 4. Cash Flow Statement Analysis 277 5. Summary 290 Problems 291 CHAPTER 7 Financial Analysis Techniques 297 Learning Outcomes 297 1. Introduction 297 2. The Financial Analysis Process 298 3. Analytical Tools and Techniques 302 4. Common Ratios Used in Financial Analysis 319 5. Equity Analysis 348 6. Credit Analysis 353 7. Business and Geographic Segments 356 8. Model Building and Forecasting 360 9. Summary 360 Problems 361 CHAPTER 8 Financial Statement Analysis: Applications 369 Learning Outcomes 369 1. Introduction 369 2. Application: Evaluating Past Financial Performance 370 3. Application: Projecting Future Financial Performance 379 4. Application: Assessing Credit Risk 389 5. Application: Screening for Potential Equity Investments 393 6. Analyst Adjustments to Reported Financials 397 7. Summary 413 Problems 413 CHAPTER 9 Inventories 417 Learning Outcomes 417 1. Introduction 417 2. Cost of Inventories 419 3. Inventory Valuation Methods 420 4. The LIFO Method 429 5. Inventory Method Changes 440 6. Inventory Adjustments 441 7. Evaluation of Inventory Management 448 8. Summary 462 Problems 463 CHAPTER 10 Long-Lived Assets 479 Learning Outcomes 479 1. Introduction 480 2. Acquisition of Long-Lived Assets 481 3. Depreciation and Amortization of Long-Lived Assets 498 4. The Revaluation Model 508 5. Impairment of Assets 512 6. Derecognition 515 7. Presentation and Disclosures 517 8. Investment Property 528 9. Leasing 531 10. Summary 553 Problems 555 CHAPTER 11 Income Taxes 567 Learning Outcomes 567 1. Introduction 568 2. Differences between Accounting Profit and Taxable Income 568 3. Determining the Tax Base of Assets and Liabilities 574 4. Temporary and Permanent Differences between Taxable and Accounting Profit 579 5. Unused Tax Losses and Tax Credits 584 6. Recognition and Measurement of Current and Deferred Tax 585 7. Presentation and Disclosure 589 8. Comparison of IFRS and U.S. GAAP 595 9. Summary 599 Problems 599 CHAPTER 12 Noncurrent (Long-Term) Liabilities 605 Learning Outcomes 605 1. Introduction 605 2. Bonds Payable 606 3. Leases 625 4. Introduction to Pensions and Other Postemployment Benefits 644 5. Evaluating Solvency: Leverage and Coverage Ratios 648 6. Summary 651 Problems 653 CHAPTER 13 Employee Compensation: Postemployment and Share-Based 657 Learning Outcomes 657 1. Introduction 658 2. Pensions and Other Postemployment Benefits 658 3. Share-Based Compensation 699 4. Summary 705 Problems 707 CHAPTER 14 Intercorporate Investments 717 Learning Outcomes 717 1. Introduction 717 2. Basic Corporate Investment Categories 718 3. Investments in Financial Assets 720 4. Investments in Associates 729 5. Joint Ventures 742 6. Business Combinations 746 7. Variable Interest and Special Purpose Entities 764 8. Summary 773 Problems 775 CHAPTER 15 Multinational Operations 785 Learning Outcomes 785 1. Introduction 785 2. Foreign Currency Transactions 786 3. Translation of Foreign Currency Financial Statements 800 4. Summary 843 Problems 845 CHAPTER 16 Evaluating Financial Reporting Quality 853 Learning Outcomes 853 1. Introduction 853 2. Discretion in Accounting Systems 854 3. Financial Reporting Quality: Definitions, Issues, and Aggregate Measures 863 4. A Framework for Identifying Low-Quality Financial Reporting 881 5. The Implications of Fair Value Reporting for Financial Reporting Quality: A Brief Discussion 915 6. Summary 915 Problems 917 CHAPTER 17 Integration of Financial Statement Analysis Techniques 921 Learning Outcomes 921 1. Introduction 921 2. Case Study 1: Long-Term Equity Investment 923 3. Case Study 2: Off-Balance Sheet Leverage from Operating Leases 953 4. Case Study 3: Anticipating Effects of Changes in Accounting Standards 957 5. Summary 962 Problems 963 Glossary 969 References 981 About the Authors 983 About the CFA Program 987 Index 989