D366 Financial Statement Analysis Study Guide (what
you need to know) Western Governors University
Financial Statement Analysis D366
Important Definitions:
● Transitory Income – Income that is not expected to be part of a
company’s regular ongoing earnings.
● Peripheral Activity – Activities not central to the business’s earnings.
● Contingent Income – Income that is dependent on certain conditions or
events occurring.
● Special Purpose Entity (SPE) – A legal entity that is created to
complete a specific, temporary, or narrow objective. They can be
used to:
> Hold assets as collateral for loans, pass financial risk to other
investors or entities, take advantage of favorable tax circumstances,
and generate liquidity.
● Accruals – Revenues earned, or expenses incurred that impact a
company’s net income on the income statement, but cash related to the
transaction hasn’t yet occurred.
● Cost of Goods Sold - The total cost of producing and selling a
product or service.
● Financing - The process of obtaining funds from a lender to make a
purchase and then paying back the funds over time.
● Investing - Putting money into an asset or project with the expectation of
earning a profit.
● Equity - The value of the shares issued by a company.
● Earnings management - Occurs when management uses judgment in
financial reporting and alters financial statements to mislead users.
● Real Earnings Management - Intentionally changing the timing or
structure of an operation, investment, or financing transaction to
increase earnings.
● Depreciation - A reduction in the value of an asset with the passage of
time, due to wear and tear.
● Amortization - An accounting technique used to periodically lower
the book value of a loan or an intangible asset over a set period of
, time.
● Current Replacement Cost - The estimated cost of replacing an
asset or service at the current market price.
● Fair Value (Mark-To-Market) - Measures a company's assets and
liabilities based on their current market value
● Adjusted Historical Cost - The value of an asset after it has been
adjusted to account for wear and tear, depreciation, or impairment.
● Goodwill - An intangible asset that represents the premium paid to
acquire a business above its fair market value.
● Tax Basis - The value of the asset for tax purposes.
● Book Value - The value of a business or asset as it appears on a balance
sheet.
● Common-size balance sheet – A Balance sheet that expresses all
amounts as a percentage of total assets.
you need to know) Western Governors University
Financial Statement Analysis D366
Important Definitions:
● Transitory Income – Income that is not expected to be part of a
company’s regular ongoing earnings.
● Peripheral Activity – Activities not central to the business’s earnings.
● Contingent Income – Income that is dependent on certain conditions or
events occurring.
● Special Purpose Entity (SPE) – A legal entity that is created to
complete a specific, temporary, or narrow objective. They can be
used to:
> Hold assets as collateral for loans, pass financial risk to other
investors or entities, take advantage of favorable tax circumstances,
and generate liquidity.
● Accruals – Revenues earned, or expenses incurred that impact a
company’s net income on the income statement, but cash related to the
transaction hasn’t yet occurred.
● Cost of Goods Sold - The total cost of producing and selling a
product or service.
● Financing - The process of obtaining funds from a lender to make a
purchase and then paying back the funds over time.
● Investing - Putting money into an asset or project with the expectation of
earning a profit.
● Equity - The value of the shares issued by a company.
● Earnings management - Occurs when management uses judgment in
financial reporting and alters financial statements to mislead users.
● Real Earnings Management - Intentionally changing the timing or
structure of an operation, investment, or financing transaction to
increase earnings.
● Depreciation - A reduction in the value of an asset with the passage of
time, due to wear and tear.
● Amortization - An accounting technique used to periodically lower
the book value of a loan or an intangible asset over a set period of
, time.
● Current Replacement Cost - The estimated cost of replacing an
asset or service at the current market price.
● Fair Value (Mark-To-Market) - Measures a company's assets and
liabilities based on their current market value
● Adjusted Historical Cost - The value of an asset after it has been
adjusted to account for wear and tear, depreciation, or impairment.
● Goodwill - An intangible asset that represents the premium paid to
acquire a business above its fair market value.
● Tax Basis - The value of the asset for tax purposes.
● Book Value - The value of a business or asset as it appears on a balance
sheet.
● Common-size balance sheet – A Balance sheet that expresses all
amounts as a percentage of total assets.
