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Annual Reports, financial reporting and inventory control

In your own words answer the following....

A) What are the particular items an analyst should review and study in a company's annual report, and what material in the annual report should be read with caution?

B) What are some intangible factors that are important in evaluating a company's financial position and performance, but are not in a company's annual report?

In your own words answer the following....

1) Why is the valuation of inventories important in financial reporting?

2) Why would a company switch to the LIFO method of inventory valuation in an inflationary period?

3) Why is the bottom line figure, net income, not necessarily a good indicator of a company's financial success?

I am confused. Which of these are Financing Activities and which are considered Investing Activities?

Purchase of Equipment (Financing Activity or Investing Activity?)
Purchase of Treasury stock (Financing Activity or Investing Activity?)
Reduction of long-term debt (Financing Activity or Investing Activity?)
Sale of building (Financing Activity or Investing Activity?)
Resale of Treasury stock (Financing Activity or Investing Activity?)
Increase in short-term debt (Financing Activity or Investing Activity?)
Purchase of land (Financing Activity or Investing Activity?)
Payment of Cash Dividends (Financing Activity or Investing Activity?)
Purchase of Common Stock of another firm (Financing Activity or Investing Activity?)
Issuance of Common Stock (Financing Activity or Investing Activity?)

Solution Preview

A) What are the particular items an analyst should review and study in a company's annual report, and what material in the annual report should be read with caution?

There are a host of figures/ data in a company's annual report that an analyst should review, such as its financial statements, including balance sheet, profit and loss account as well as cash flow statement. He should compare the growth in performance with those of previous years figures. Analysts should focus on key ratios, such as Return on Equity/ Return on Assets, Earnings per share, Operating margins, Sales/ Revenue growth rate, Turnover and Liquidity ratios, Capital Structure to interpret the results in the best possible manner.

Further, analyst should review the management's discussion and key highlights of the business during the year to ascertain the current health and future prospects of the business.

The risk factors highlighted by the management as well as material disclosures/ notes ...

Solution Summary

What are the particular items an analyst should review and study in a company's annual report, and what material in the annual report should be read with caution?

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