ASS2# Step1

Step1:

Analysing financial statement! When I read chapter 4 at first, I had no idea about restating if I am honest. I had to look over and over again but it was still tough to get understanding.  However after attending lecture week 6 and 7 it was easier to understand this chapter with lecturer’s explanation and it also helped me to do step 2 of assignment 2 which is restating financial statements.

I found difficult to distinguish operating and financial activities when I restating of the financial statements. It was also confusing to allocate cash to operating asset and financial assets. The hardest part was changes in equity as I had to calculate tax benefits.

So these are my key concept questions about chapter 4.

KCQ:

Dividend is transfer value rather than adding value

Free cash flow

What are key drivers of economic profit?

Measuring cost of capital

Understanding difference between operating and financial activities

How do I distinguish operating and financial activities?

Understanding difference between transfer value and adding value

What’s different between economic profit and net profit?

Relationship between profitability and efficiency

Tax benefits

What I learnt?

1.       Powerful way to view information to restate the annual report.

How? (How do we restate?)

è Need to know what is operating and financial activities and need to know how to distinguish these.

Why do we do restating?

èTo better view, better understanding have to restate the annual report

I was wondering why they don’t publish restatement in their annual report if it is really important

2.       To focus the future, one must conducted the past.

3.       Distinguish operating and financial activities of a firm

4.       The two common frameworks used to analyse firms

          A.       DCF

          B.        Economic profit

I wondered again why they don’t use it in their annual report because it is important as it is the most efficient way to look at the key value drivers of economic profit and cash flow,

What is the difference between net profit in normal report and economic profit?

Economic profit= NO profit /NOA = %- Cost of capital (interest payment)

5.       How firms add value?

       Difference between adding value and transfer of value

6.       Financial statement help readers to make better informed decisions in their dealing with the  entity.