Segment reporting facilitates the financial statement analysis of diversified companies. What determines whether an operating segment is a reportable segment for this purpose?
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Segment reporting facilitates the financial statement analysis of diversified companies. What determines whether an operating segment is a reportable segment for this purpose?
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- Which type of analysis compares a single corporation across time? a. timetable analysis c. company analysis b. time series analysis d. cross sectional analysisEffect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.23 (pages 6263) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.23 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large for the firm to disclose it. A list of the 12 companies and a brief description of their activities follow. A. Abercrombie Fitch: Sells retail apparel primarily through stores to the fashionconscious young adult and has established itself as a trendy, popular player in the specialty retailing apparel industry. B. Allstate Insurance: Sells property and casualty insurance, primarily on buildings and automobiles. Operating revenues include insurance premiums from customers and revenues earned from investments made with cash received from customers before Allstate pays customers claims. Operating expenses include amounts actually paid or expected to be paid in the future on insurance coverage outstanding during the year. C. Best Buy: Operates a chain of retail stores selling consumer electronic and entertainment equipment at competitively low prices. D. E. I. du Pont de Nemours: Manufactures chemical and electronics products. E. Hewlett-Packard: Develops, manufactures, and sells computer hardware. The firm outsources manufacturing of many of its computer components. F. HSBC Finance: Lends money to consumers for periods ranging from several months to several years. Operating expenses include provisions for estimated uncollectible loans (bad debts expense). G. Kelly Services: Provides temporary office services to businesses and other firms. Operating revenues represent amounts billed to customers for temporary help services, and operating expenses include amounts paid to the temporary help employees of Kelly. H. McDonalds: Operates fast-food restaurants worldwide. A large percentage of McDonalds restaurants are owned and operated by franchisees. McDonalds frequently owns the restaurant buildings of franchisees and leases them to franchisees under long-term leases. I. Merck: A leading research-driven pharmaceutical products and services company. Merck discovers, develops, manufactures, and markets a broad range of products to improve human and animal health directly and through its joint ventures. J. Omnicom Group: Creates advertising copy for clients and is the largest marketing services firm in the world. Omnicom purchases advertising time and space from various media and sells it to clients. Operating revenues represent commissions and fees earned by creating advertising copy and selling media time and space. Operating expenses includes employee compensation. K. Pacific Gas Electric: Generates and sells power to customers in the western United States. L. Procter Gamble: Manufactures and markets a broad line of branded consumer products. REQUIRED Use the ratios to match the companies in Exhibit 1.23 with the firms listed above.Effect of Industry Characteristics on Financial Statement Relations. Effective financial statement analysis requires an understanding of a firms economic characteristics. The relations between various financial statement items provide evidence of many of these economic characteristics. Exhibit 1.22 (pages 6061) presents common-size condensed balance sheets and income statements for 12 firms in different industries. These common-size balance sheets and income statements express various items as a percentage of operating revenues. (That is, the statement divides all amounts by operating revenues for the year.) Exhibit 1.22 also shows the ratio of cash flow from operations to capital expenditures. A dash for a particular financial statement item does not necessarily mean the amount is zero. It merely indicates that the amount is not sufficiently large enough for the firm to disclose it. Amounts that are not meaningful are shown as n.m. A list of the 12 companies and a brief description of their activities follow. A. Amazon.com: Operates websites to sell a wide variety of products online. The firm operated at a net loss in all years prior to that reported in Exhibit 1.22. B. Carnival Corporation: Owns and operates cruise ships. C. Cisco Systems: Manufactures and sells computer networking and communications products. D. Citigroup: Offers a wide range of financial services in the commercial banking, insurance, and securities business. Operating expenses represent the compensation of employees. E. eBay: Operates an online trading platform for buyers to purchase and sellers to sell a variety of goods. The firm has grown in part by acquiring other companies to enhance or support its online trading platform. F. Goldman Sachs: Offers brokerage and investment banking services. Operating expenses represent the compensation of employees. G. Johnson Johnson: Develops, manufactures, and sells pharmaceutical products, medical equipment, and branded over-the-counter consumer personal care products. H. Kelloggs: Manufactures and distributes cereal and other food products. The firm acquired other branded food companies in recent years. I. MGM Mirage: Owns and operates hotels, casinos, and golf courses. J. Molson Coors: Manufactures and distributes beer. Molson Coors has made minority ownership investments in other beer manufacturers in recent years. K. Verizon: Maintains a telecommunications network and offers telecommunications services. Operating expenses represent the compensation of employees. Verizon has made minority investments in other cellular and wireless providers. L. Yum! Brands: Operates chains of name-brand restaurants, including Taco Bell, KFC, and Pizza Hut. REQUIRED Use the ratios to match the companies in Exhibit 1.22 with the firms listed above.
- (Based on Appendix 3) Segment reporting facilitates the financial statement analysis of diversified companies.What determines whether an operating segment is a reportable segment for this purpose?Segment reporting deals with in-detail segment-wise financial reporting in the financial statements of the company. What are the specific segments? What does each segment contribute to the total company income and profits?List the relevant market value ratios of companies.
- One of the most important applications of ratio analysis is to compare a company’s performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A common size analysis requires the representation of financial statement data in terms of a single financial statement item (or base account or value). What is the most commonly used base item for a common size income statement? Total assets Total liabilities Stockholders’ equity Net sales Suppose you are conducting an analysis of the financial performance of Cold Goose Metal Works Inc. over the past three years. The company did not issue new shares during these three years and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company’s relevant financial…Which of the following is the most useful in analyzing companies of different sizes? a.comparative statements b.common-sized financial statements c.price-level accounting d.audit reportRatio Analysis is the process of identifying the financial strengths and weaknesses of the enterprise by logically establishing relationship between the items of Balance Sheet or Income Statement or both and interpreting the results there of in order to derive meaningful conclusions. In view of the requirement of various users (e.g., Short-term Creditors, Long-term Creditors, Management & Investors) of the ratios, one may classify ratios into the following four groups: a) Liquidity Ratios b) Solvency Ratios c) Activity Ratios d) Profitability Ratios You are required to pick any two from the aforementioned groups and discuss the various ratios calculated under these along with the purpose or objective of calculation of the individual ratios you are alluding to.
- What is segment financial reporting? Provide the main criteria for segment reporting. What are the purposes of segment financial reporting? What are the basic analysis that should be included in segment financial reporting?What are the limitations to using financial ratio analysis [such as profitability ratios, liquidity ratios, gearing ratios, and investment ratios] computed from the financial statements of a company. What other alternatives could have been used to decide on the performance and investment-worthiness of a company.What are financial ratios? Using numerical values from financial statements, financial ratios are created to obtain useful information about a company. Using the numbers on a company's balance sheet, income statement, and cash flow statement, quantitative analysis of a company's liquidity, leverage, growth, margins, profitability, rates of return, valuation, and other factors can be performed. Financial analysis ratio is used for 2 main purpose; to track the company’s performance and to make comparative judgements of the company performance. Users from outside: Retail investors, financial analysts, creditors, rivals, tax and regulatory authorities, and industry observers are internal users. Owners, employees, and the management team.