Analysts' adjustments to a company's reported financial statements are sometimes necessary (e.g., when comparing companies that use different accounting methods or assumptions). A balance-focused framework for analyst adjustments is presented in the textbook.
Different categories of investment securities have different treatments regarding unrealized holding gains and losses. Depending on management's intention, investment securities can be classified as:
Adjustments may be needed to facilitate the comparison of two otherwise comparable companies that have significant differences in the classification of investments.
IAS No.2 does not permit the use of LIFO. If a company not reporting under IFRS uses LIFO but another company uses FIFO, comparison of the two companies may be difficult. Reading 27 [Inventories] illustrates how to make an inventory adjustment and its impact.
Property, Plant and Equipment
Companies may choose different depreciation methods (e.g., a straight-line method or an accelerated method) and accounting estimates (e.g., salvage value or useful life) related to depreciation. Disclosures required for depreciation often do not facilitate specific adjustments. Analysts may evaluate the relationships between various depreciation-related items (e.g., gross PPE, accumulated depreciation, depreciation expense, cash flows for capital expenditure, and asset disposals).
The above three indicators are discussed in Reading 28 [Long-Lived Assets].
Goodwill is recorded as an asset if one company purchases another for a price that is more than the fair value of the assets acquired. Internally generated goodwill is not recorded on the balance sheet. Adjustments are needed to compare two otherwise comparable companies when one has a recorded goodwill asset. The textbook provides an excellent example of the ratio comparisons for goodwill.
This topic is covered in Reading 30 [Non-current (Long-term) Liabilities].
|lordcomas: Analyst Notes, you could include exactly in which page of the textbook this example is to be found. that would help a lot with speed. thank you!|
|unknown: reading 33 pg 737|
|Salivon: Mate just use "Index" section in the end of the textbook;)|