1. Chapter 9 Analysis of Foreign Fi

1. Chapter 9 Analysis of Foreign Financial Statements
2. Analysis of Foreign Financial Statements
Chapter Topics
Reasons for analyzing foreign financial statements.
Problems encountered in analyzing foreign financial statements.
Possible solutions to problems encountered in analyzing foreign financial statements.
Restating foreign financial statements to U.S. GAAP illustrated.
3. Reasons to Analyze Foreign Financial Statements
Foreign portfolio investment
Investors can diversify away some risk by investing internationally.
While stock returns in many countries are positively correlated with U.S. returns, these correlations are far from perfect.
4. Reasons to Analyze Foreign Financial Statements
International mergers and acquisitions
The frequency and size of international corporate mergers has increased in recent years.
Examples include Daimler/Chrysler and acquisitions by Ford Motor such as Volvo (of Sweden).
The purchaser of an international company needs to analyze the target company’s financial statements to determine the acquisition price.
5. Reasons to Analyze Foreign Financial Statements
Other reasons
Extending credit for foreign customers.
Evaluating foreign vendors.
Comparisons to international competitors.
6. Foreign Financial Statement Analysis – Problems
Data accessibility
Relative to the U.S., financial information is difficult to obtain in many countries.
While databases of foreign financial statements do exist, these can contain errors and present information in a variety of formats.
These databases also do not contain complete disclosure notes.
Another approach is to obtain a copy of the foreign company’s annual report.
7. Foreign Financial Statement Analysis – Problems
Language
Many international companies do not produce financial statements in English .
The financial statement user could hire a translator or develop foreign language capability.
Since English is the language of business, companies in many foreign countries produce convenience translations of their financial statements in English.
8. Foreign Financial Statement Analysis – Problems
Currency
Many international companies produce their financial statements in a currency other than the U.S. dollar .
These can be converted to U.S. dollars by translating all balances at the exchange rate at the end of the current year.
In order to avoid distortions, the current exchange rate should be used for all previous years.
Analysis using ratios is not distorted by different currencies-
Thus currency differences are usually a minor problem .
9. Foreign Financial Statement Analysis – Problems
Terminology
Differences in terminology exist between countries using the same language.
For example, sales in the U.S. is normally called turnover in the UK.
In cases of convenience translations, sometimes these include terminology unfamiliar to English speakers.
Knowledge of the business and accounting environment can help alleviate some of these problems.
10. Foreign Financial Statement Analysis – Problems
Format
Some format differences are not problematic because the information is given, just in a different place.
However, other format differences are a problem because the information is not provided .
Example: It is common in Europe to not provide cost of good sold.
This prevents an analyst from determining gross margin percentage and inventory turnover.
11. Foreign Financial Statement Analysis – Problems
Format
Another example: German and other continental European companies often do not distinguish between current and noncurrent liabilities .
This makes it difficult or impossible to compute a current ratio.
12. Foreign Financial Statement Analysis – Problems
Extent of disclosure
Disclosure internationally tends to be limited compared to the U.S. where full disclosure is fundamental.
Some of the most serious disclosure limitations are information on segments, asset valuation, foreign operations, interim statements, and reserves .
Globalization of capital markets tends to enhance disclosure as companies attempt to attract investors.
13. Foreign Financial Statement Analysis – Problems
Timeliness
Timeliness is one aspect of the relevance of information.
This varies significantly internationally since filing deadlines differ from country to country.
Among developed countries, the U.S. and Canada are the most timely whereas continental Europe is the least .
Requirements about the frequency of information also vary internationally from quarterly to annual reporting.
There is very little investors can do to overcome these problems.
14. Foreign Financial Statement Analysis – Problems
Differences in accounting principles
Differences in accounting principles often result in significantly different income and other financial statement amounts.
Some of the biggest problem areas are consolidations, fixed asset valuation and depreciation, and goodwill .
15.
Global context plays a big role in the degree of accounting differences and flexibility.
Examples:
Germany- tax/reporting tied together.
UK: “True and Fair View”
USA-Prescriptive rule-based standards (leases, pensions, etc.)
16. Foreign Financial Statement Analysis – Possible Solutions
Differences in accounting principles
Possible solutions:
Reframe foreign financial statements to a more familiar GAAP.
Use a stripped down measure of earnings that excludes items most affected by diversity.
Invest using macro indicators and diversification to reduce increased information risk.
Learn the local GAAP and business environment- then use the statements as published.
17. The impact on Financial Statement Analysis of Efforts to Harmonize Accounting Differences
As the use of the new IFRSs becomes more widespread, many of these problems will likely abate .
However, even if perfectly adopted, IFRSs, as currently formulated, cannot fully eliminate the increased information risk of international investment.
Example: Japan business forms and consolidation accounting. Consolidation accounting codified into IFRSs was developed to address US/UK entity issues, not those that developed in different cultures around the pacific rim.
18. Foreign Financial Statement Analysis – Interpretation of accounting ratios.
Business environment differences
Differences in culture and economic environments have an impact on the relevance of ratios. Knowing about these differences is crucial when investing internationally.
A study of companies in Japan, Korea, and the U.S. found significant differences due to business environment.
For example, Japanese and Korean companies borrow much more on a short-term basis than U.S. companies, leading to lower current ratios.
19. Foreign Financial Statement Analysis – Interpretation of Accounting ratios
Business environment differences
Debt ratios also tend to be higher in Japan and Korea because of government-sanctioned sources of financing.
Lower profit margins in Japan, relative to U.S., can be partly explained by those companies focus on market share as opposed to profits.
In summary, an investor needs to be aware of these differences and not forgo potentially profitable (long-term) investments.
20. Restating Foreign Financial Statements to U.S. GAAP
Form 20-F
Foreign companies that file non-U.S. GAAP financial statements with the SEC are required to complete a Form 20-F.
The Form 20-F reconciles net income and stockholders’ equity to U.S. GAAP.
However, there is no requirement to reconcile assets and liabilities.
In essence, this represents a partial restatement from foreign GAAP to U.S. GAAP.
21. Restating Foreign Financial Statements to U.S. GAAP
Form 20-F
Some ratios, such as return on equity, can be computed as if under U.S. GAAP.
Most other ratios, however, cannot be computed as if under U.S. GAAP.
The analyst can overcome this by performing the restatement of financial statement items.
22. Restating Foreign Financial Statements to U.S. GAAP
Restatement overview – Step one of two
The first step, reformatting, involves transforming the financial statements into a U.S. format.
This involves transformation of:
terminology differences,
presentation differences, and
Item definitions and classifications.
23. Restating Foreign Financial Statements to U.S. GAAP
Restatement overview – Step two
The second step involves restating the foreign GAAP amounts to U.S. GAAP amounts.
This process is made easier when the company files a Form 20-F.
Sometimes, companies will present a similar reconciliation without actually filing the Form 20-F.
In any case, notes to the financial statements are very useful in completing this step.
24. Restating Foreign Financial Statements to U.S. GAAP
Step one mechanics – Reformatting
Begin with setting up a four column worksheet in U.S. GAAP format.
Columns are foreign GAAP, debits, credits, and U.S. GAAP. Amounts are presented in original currency.
Prepare worksheets for income statement, statement of retained e

ผลลัพธ์ (ละติน) 1:

CAPUT IX 1. Analysis of Foreign volutpat
II. Analysis of Foreign volutpat
Chapter Topics
rationes perpendere Foreign volutpat.
Problems in excutiendis Foreign occurrit volutpat.
possibile Solutions ad quaestiones congressi in excutiendis Foreign volutpat.
Nullam volutpat confirmata Foreign ad US Sed in illustratione esse.
III. Rationes ad resolvere volutpat Foreign
elit Portfolio Foreign
elit Potest diversificare procul periculum a nonnullis internationally circumsedere.
Stock Dum redit in multis regionibus sunt positive connectuntur cum US Rediens, correlationibus his non perfectorum.
IV. Rationes ad resolvere Foreign volutpat
International mergers et adquireret
Frequentia et magnitudine Internationalis Corporate mergers crevit in recentioribus annis.
Exempla inter Daimler / Chrysler et licita per Ford Motor talis sicut Volvo (of Sweden).
The emptorem an International eget dolor. The Company target scriptor Duis volutpat determinare Acquisition Price.
V. Rationes ad resolvere Foreign volutpat
aliis de causis
longitudinis Credit enim Foreign elit.
aestimandis Foreign concionatorum.
comparationes ad International competitores.
VI. Aliena Oeconomus testimonii Analysis - Quaestiones
Data rib
Secundum US financial notitia est arduitate in multis regionibus.
Dum elit exterae volutpat sint, possint capere erroribus praesens notitia variis forma.
Haec elit efficiuntur. Complete Enuntiatum Notes continent.
Aliud est, accede ad peregrinarum copiam societatis Annual Report.
VII. Foreign Financial Statement Analysis - Problems
Language
multi International turmas non faciunt volutpat in English.
The Financial Statement user posset conducentes translator aut develop Lingua aliena facultatem.
Cum Latina est lingua negotium, turmas in pluribus exterae regiones prope commodum translations of eorum. Nullam volutpat legeret.
VIII. Aliena Oeconomus testimonii Analysis - Quaestiones
Nummus
multi Latin turmas producunt volutpat in monetam praeter US pupa.
Hi possit converti ad pupa vertendo omnis statera in commutatione rate finem vertentis anni.
vitando. iactatione, prioribus annis fieri mos erat apud negotiatores.
Currencies- usura variis variae depravatum namque
plurimum differunt haec Minor monetæ consequat.
IX. Foreign Financial Statement Analysis - Problems
Terminology
Varietas in terminos inter Nationes, eumdem sermonem.
Enim Sales in in US in communi sermone dicatur turnover in UK.
In casibus, de Convenience translations, quandoque includunt Terminology ignotas to English nibh.
Sed cognitio. negotium et quibusdam horum ratio auxilium sublevare adipiscing elit.
X. Aliena Oeconomus testimonii Analysis - Quaestiones
Format
Plerumque format differentias non problematicae quia informantur, sicut in alio loco.
Sed alia forma differunt a forsit quia notitia non prouidetur.
Sicut enim est commune in Europa non possunt. Sumptus SOLD bonum.
Hoc prohibet a Analyticum determinans crassa margine percentage et inventarium turnover.
XI. Oeconomus exterae testimonii Analysis - Quaestiones
Format
aliud: et alia quoque Germaniae locis Europae plerumque non discrevit inter creditores noncurrent cursus.
Inde cursus difficile aut impossibile sit ratio.
XII. Foreign Financial Statement Analysis - Problems
amplitudo Enuntiatum
Enuntiatum internationally tendit in limitata ad US ubi integra non est fundamentalis.
Aequaliter grauissimum Enuntiatum determinationes sunt notitia in segmentis, Asset aestimationem aliena Aliquam, Interim, intellectus, et reservat.
Globalization. Enuntiatum de Capital fora tendunt ad alliciendum ADCUMULO Sicut turmas conantur elit.
XIII. Aliena Oeconomus testimonii Analysis - Quaestiones
novitas
novitas est ratio vertimus consequat.
Hoc varius signanter internationales cum interpositione Deadlines differunt patria patriae.
In Nationibus US et Canada maxime opportunum cum Barum Europa est minima.
tincidunt. notitia de frequentia et ad quatuor annos varie internationales mi.
superanda parum faciat elit volutpat.
XIV. Foreign Financial Statement Analysis - Problems
Varietas in censea principia
differentiarum in censea principia saepe proveniunt ab ipsius accepti et Other Financial Statement sat.
Aequaliter of maximus forsit areas sunt consolidations Fixus Asset aestimatione et imminutiones et Benevolentia.
XV.
Global context ludit a. The Big munus in gradu flexibilitate et ratio differentiae.
Exempla:
Germany- Tax / Reporting colligatorum.
UK: "Vera et Fair View"
USA regula praescribit-substructio Signa (addicit, pensionibus, etc.)
XVI. Foreign Financial Statement Analysis - possibile Solutions
Varietas in censea principia
possibile Solutions:
Reframe Foreign volutpat ad notiorem GAAP.
Uti a spoliavit descendit mensuram referte quae excludit Items maxime afficitur diuersitas.
Obsido usura macro indicibus et Diversification ad Redigo augeri notitia periculo. .
Learn The Local GAAP environment- negotium et tunc utor Denunciationes sicut Published.
XVII. Corpus in Financial Statement Analysis igitur opera est, ut concentus Arbitrans Varietas
Ut USUS The New IFRSs fit latius, multa de quibus itidem, si verisimile mitesceret.
Attamen, si perfecte adoptatus, IFRSs, ut currently formetur, non potest plene fruit Intendendi notitia. International periculum elit.
Example: Iaponia forms negotium censea et consolidationis. In US censea est succrevit Consolidation alloqui sancivit IFRSs / Exitus UK entitatem, non illi qui in diversis culturis succrevit circa Rim Tranquillo.
XVIII. Oeconomus exterae testimonii Analysis - interpretationis ratio proportionum.
Varietas Lorem Opera
diversae culturae et oeconomicae environments vertimus rationibus habent ictum. Dis- scire pendet internationales cum circumsedere.
Tractatus de turmas eleifend, Asia, et quod nostrum est ob rem diversis environment.
Nam multo magis mutuare Islandica turmas et Korean RADIX breve tempus quam US locis ,. ducit ad inferiora current rationibus.
XIX. Foreign Financial Statement Analysis - Interpretatione arbitrans rationes
Lorem environment differentiis
Debt rationes etiam tendunt ad esse altior in Japan et Korea Propter Government sancitum fontes imperdiet.
Lower lucrum marginibus in Japan, quod ad nos, partim quae explicantur per turmas Focus. Ut opponitur lucrum forum participes.
in summa potentia esse, an Investor eget turpis ac deseri utile (diu) Collocationes.
XX. Foreign volutpat verbatim repetens, ad US Sed in
F-XX forma
externa est cum in consortiis, quod lima non-US financial dictis GAAP SEC F-XX et perfectum, Form.
The Form F-XX et stockholders conciliat rete reditus, ad US Sed in aequitate.
tamen non est non requiritur, ut in gratiam bonorum et rerum habent immunitatem.
In essentia hoc est tum ex parte restatement GAAP ad US Sed in Foreign.
XXI. Verbatim repetens Foreign volutpat ad US Sed in
forma XX-F
Aequaliter rationibus, ita ut reditum in aequitate, potest computatis, tamquam sub US GAAP.
Most Aliae autem proportiones non possunt computari, quasi sub US GAAP.
The Analyticum potest vincere a. Faciendo Financial Statement of Items De correspondentia est.
XXII. Foreign volutpat verbatim repetens, ad US Sed in
nomine signata Overview - Step Unus duo
Gradus The First, reformatting, The volutpat involvit Eique in US format.
In hac parte officium est Transformation:
Terminology differentiarum,
differentiis Presentation, et
Item Classifications et definitiones.
XXIII. Verbatim repetens Foreign volutpat ad US Sed in
nomine signata Overview - Step duo
The Second Step involvit, resumentes The Foreign GAAP, est US GAAP recidit.
Hoc processu facilius cum The Company Files a Form XX-F.
Quandoque turmas exhibeat simile Reconciliationis Sine. Forma etiam limatura-C XX.
Alioquin, utiles sunt in perficiendis Syceno dicta pecunia hoc.
XXIV. Foreign verbatim repetens, ad US Sed in financial dictis
Mechanica Step One - reformatting
incipe Erigerent quattuor column officina in US Sed in forma.
Sed in libero sunt externa, debits, credits, et Sed in US. Tollantur, obtulit in Original currency.
Prepare for worksheets reditus constitutionis, Constitutionis Retentio E.