International Financial Statement Analysis

CHAPTER 4

UNDERSTANDING THE INCOME STATEMENT

Thomas R. Robinson, CFA CFA Institute Charlottesville, Virginia

 

Hennie van Greuning, CFA World Bank Washington, DC

 

Elaine Henry, CFA University of Miami Miami, Florida

 

Michael A. Broihahn, CFA Barry University Miami, Florida

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

• Describe the components of the income statement and the alternative presentation formats of that statement.

• Discuss the general principles of revenue recognition and accrual accounting, specific revenue recognition applications (including accounting for long-term contracts, installment sales, barter transactions, gross and net reporting of revenue), and the implications of revenue recognition principles for financial analysis.

• Discuss the general principles of expense recognition, such as the matching principle, specific expense recognition applications (including depreciation of long-term assets and inventory methods), and the implications of expense recognition principles for financial analysis.

• Distinguish between the operating and nonoperating components of the income statement.

• Discuss the financial reporting treatment and analysis of nonrecurring items, including discontinued operations, extraordinary items, unusual or infrequent items, and changes in accounting standards.

• Describe the components of earnings per share and calculate a company’s earnings per share (both basic and diluted earnings per share) for ...