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Professor Luiz Carlos Benner

Andrs Aguilar Ruiz
Framework for Analysis and valuation: Business environment and
accounting information Summary

The main reason of this work is to summarize and highlight the principle
key facts in the Business environment and accounting information
according to the book; financial statement analysis and valuation by
Easton D, Peater; and McAnally, Mary Lea. It is expected that the reader
of this summary will be capable of understanding and comprehending
the content explained, therefore, he would be able to analyze valuation
and business data.
It is absolutely clear that to successfully analyze a company or infer its
value, we must understand the companys business activities. Financial
statements help us understand these business activities. These
statements report on a companys performance and financial condition,
and reveal executive managements privileged information and insights.
With the correct use of financial statements the information system of a
company can be used in the making of judgments, assumptions, and
estimations. Which can help in the financial decision making of the
The first step to analyze correctly the accounting information of any
party is to consider the business contest in which the information and
data to be analyzed was created. As important as this step is the
companys strategic business plan is too, for it reflects the plans to
achieve the goals and objectives.
Now, it is really important to establish that the existence of the demand
for financial statements is crucial as an easier way measure parameters
of contracting, risk sharing, and investing during the decision-making.
For this demand there are many regulatory international agencies that
intervene in the requirement to establish a minimum of information.
On the other hand the quantity and quality of accounting information
that companies supply are determined by managers assessment of the

benefits and costs of disclosure. There are two main regulations provided
by the security and exchange commission (SEC); which are:

Form 10-K: the audited annual report, which provides a

comprehensive overview of the company for the past year;
includes the four financial statements, discussed below, with
explanatory notes and the managements discussion and analysis
of financial results along with other important disclosures and for
periods in addition to the past year.
Form 10-Q: the quarterly report, which provides an interim view
of a companys financial position and performance; includes
summary versions of the four financial statements and limited
additional disclosures.

The benefits of giving accounting information to the market tends to

extend to a companys capital, labor, input, and output markets.
Companies must compete in these markets if they want to grow with a
certain level of stability. The better a companys prospects, the lower is
its cost of capital, however, the costs of supplying accounting
information include its preparation and dissemination, competitive
disadvantages, litigation potential, and political costs.
As it has been mention earlier, regulations form a fundamental part in
the process of the compilation and supply of accounting information, for
which the International Accounting Standards Board (IASB) supervises
the development of accounting standards for a great number of
countries. Outside the United States more than 100 countries including
those in the European union, require use of international Financial
reporting standards (IFRS).
Another key part in the decision making of a company is the financial
statements of it, which are responsible of periodically report on business
activities, the most important statements are; balance sheet, income
statement, statement of stockholders equity, and statement of cash
For starters, the balance sheet reports a companys financial position at
a point in time. The balance sheet reports the companys resources
(assets), namely, what the company owns. The balance sheet also
reports the sources of asset financing. The balance sheet is mainly used
to raise money from the shareholders and investors.

On the other hand, the statement of stockholders equity reports on

changes in key types of equity over a period of time. For each type of
equity, the statement reports the beginning balance, a summary of the
activity in the account during the year, and the ending balance.
Moreover, there is the statement of cash flows; which reports the
change, whether increase or decrease in a companys cash balance over
a period of time. However, the change in cash is not what matters as
that can be found from the balance sheet. The useful information this
statement reports is the detailed cash inflows and outflows from
operating, investing, and financing activities over a period of time.
All of the statements already mentioned can be useful and a key part in
the realization of the SWOT analysis (which is preferred by some
companies instead of porters diamond) of the business environment.
SWOT stands for; strengths, weaknesses, opportunities, and threats, and
its main purpose is to divide and analyze the company in the four areas
already mention to know where the company needs help and where it
can grow in benefit of itself and of the investors.
Besides, SWOT analysis tries to understand particular strengths and
Weaknesses that give rise to specific Opportunities (to exploit the
strengths) and Threats (caused by the Weaknesses). When used as part
of an overall strategic analysis, SWOT can provide a good review of
strategic options. However, it is important to know that SWOT analysis is
sometimes criticized as too subjective.