Essay About Financial Accounting And Financial Markets

Financial Accounting & Reporting
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FINANCIAL ACCOUNTING & REPORTINGIntroduction to the course:Financial information and financial markets – Adobe Systems Inc (ADBE)Firms listed in the US must publish quarterly filings. In Europe, it is only mandatory to publish twice a year.The expectations for year 2013 were met but they are not the reason for the peak in the stock price. The reason is the amount of 402 000 new subscribers to Adobe Creative Cloud (more than expected).There are two ways to earn money with a software:selling a license to use a software and hope that consumers will purchase the next version;selling a subscription with additional services online “cloud” and automatic updates for a monthly fee of X.What is accounting?The accounting rules are set by:FASB (Financial Accounting Standard Board) in the US;IASB (International Accounting Standard Board) internationally.LVMH Group – OverviewThe Chairman generally represents the shareholders and appoints and oversees the CEO (who executes the strategy and runs the business).Treasury stock: shares of LVMH held by LVMH (autodétenues).Operating Profit = EBIT. We care about this indicator because it shows the performance of core business without the effects of financing (through debt) & investments in financial assets and taxation.Net income: amount of wealth created through activities over a specific time period. It is added to shareholders’ equity.Equity: the value of the company for its shareholders. It represents the amounts that were invested in the business by shareholders and of past profits reinvested in the business. This is a backward looking measure of value.Market value: NOSH x current share price. It is the market participants’ assessment of the economic value of ownership of the company. It is the value of expected future cash flows (because ownership means ownership of future cash flows). It is a forward looking measure of value.LVMH Group 2014:ASSETSEQUITY & LIABILITIESTotal assets: 53,362Equity: 23,003FY 2014, the market value was 66,4bn. Why is market value superior than equity value? It means that the firm is healthy. It indicates that future cash flows add value to the current value of ownership represented by equity. In most of the cases, the market-to-book ratio (market value / equity) is more than 1. When it is <1, most of the value of the company comes from the past and not from the future (not good!). Understanding the Financial Statements (FS)Net income = cash flow + adjustments (accruals : non-cash revenues and non-cash expenses).For large international companies, we generally have a statement of comprehensive income, which includes a normal income statement plus other comprehensive income.MD&A: Management Discussion & Analysis.An annual report may have different names: reference document, form 10-K (in the US), form 10-Q (for quarterly results).Four types of auditors’ opinions:unqualified opinion: no problem, the auditors say that the financial statements are ok and reliable;qualified opinion: the auditors disapprove some of the figures in the financial statements, but it’s no big deal;adverse opinion: the auditors think that the figures are not reliable;disclaimer of opinion: the auditors did not manage to complete their task of auditing the firm.A restatement against equity is when equity is overvalued. In fact, the value created from past profits reported is not the real one and it’s overvalued. So you need to correct that. In the case of Enron, it overvalued its past profits and had to restatement its equity for 1.2bn USD.SOX 2001, 2002 :separation of audit and consulting missions for the same client;internal control of listed firms;the PCAOB (Public Company Accounting Oversight Board) is created to oversees the auditors.US have a single audit model. France has a mandatory joint audit (two different audit firms must sign the same report). This is why the French audit market is less concentrated than in other markets.Some countries have a voluntary joint audit model (one or two auditors, you decide): Sweden, Denmark, Germany…The Balance SheetAssets = Equity + LiabilitiesThe Income StatementAn increase in assets (balance sheet) implies gains/profits in the income statement which results in an increase of the net income at the balance sheet level (rise in equity). Thus you have a compensation.