Summary Business analysis and valuation Book cover image

Summary Business analysis and valuation

- Krishna G Palepu, et al
ISBN-13 9781473758421
102 Flashcards & Notes
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A snapshot of the summary - Business analysis and valuation Author: Krishna G Palepu, Paul M Healy, Erik Peek ISBN: 9781473758421

  • 1 A framework for business analysis and valuation using financial statements

  • 1.1 The role of financial reporting in capital markets

  • Funding business ideas with the highest prospects is compicated for which three reason?
    Information asymmetry between savers and entrepeneurs
    Potentially conflicting interests, credibility problems
    Expertise asymmetry
  • Describe accrual accounting
    Accrual accounting distinguishes between the recording of costs or benefits associated with economic activities and the actual payment or receipt of cash. Profit or loss is the primary periodic performance index under accrual accounting
  • Accounting standards also limit
    Managements ability to misuse accounting judgement by regulating how particular types of transactions are recorded
  • A reporting strategy is
    The manner in which managers use their accounting  discretion, has a an important influence on the firms financial statement
  • Auditing improves the quality and credibility of accounting by
    Limiting the firms ability to distort financial statements to suit its own purposes. However, auditors cannot review all firms transaction so they are not perfect
  • Third party auditing may also reduce the quality of financial reporting because
    It constrains the kind of accounting rules and conventions tha evolve over time
  • The potential for significant legal liablity may also
    Discourage managers and auditors from supporting accounting proposals requiring risky forecasts
  • Strict public enforcement may also reduce the quality of financial statements because
    In their attempt to avoid an accounting credibilty crisis on public capital markets, enforcement bodies may pressure companies to exercise scessive prudence in their choices
  • 1.2 Alternative forms of communication with investors

  • Describe an analist meeting
    At these meetings management will field questions about the firms current situation and financial performacne and discuss its future plans
  • Describe voluntary disclosure
    Another way for managers to increase the credibility on their financial reporting is through voluntary disclosure
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