1. Module C Financial Statement Analysis: Investing Activities

2. Topics
Review cash flows and other financial statement effects related to investments in debt and equity securities
Review cash flows and other financial statement effects related to investments in long-lived operational assets
Understand effects of investments on the financial ratios identified in Module A

3. Learn the balance sheet and income statement [pro forma informal] adjustments made by many financial analysts in the process of analyzing the effects of investments on the profitability and risk of the firm
Identify the quality of earnings [pro forma informal] adjustments made by analysts in the area of gains and losses on investment transactions

4. Review Cash Flows and Other Financial Statement Effects Related to Investments in Debt and Equity Securities
Investments in debt and equity securities
Statement of cash flows
Trading securities viewed as operating activities
All other investments viewed as investing activities

5. Statement of cash flows
Dividends on stock investments viewed as operating activities
Exception: Dividends on investments accounted for using the equity method do not affect income, but, instead reduce investment.
Interest on debt investments viewed as operating activities
Unrealized gains/losses on trading securities are noncash revenue; adjust out of net income

6. Income statement
Trading securities: Interest, dividends, and unrealized gains/losses reported in “other gains/losses” section
AFS securities: Interest and dividends reported in “other gains/losses” section
Equity-level securities: pro-rata share of investee’s net income reported in “other gains/losses” section
HTM securities: Effective interest revenue reported in “other gains/losses” section

7. Statement of comprehensive income
Unrealized gains/losses on available-for-sale securities are reported as other comprehensive income

8. Review Cash Flows and Other Financial Statement Effects Related to Investments in Long-lived Operational Assets
Statement of Cash Flows
Transactions reported as investing activities

9. Income statement
Affected by depreciation and amortization expense
Research and development costs are expensed
Interest cost on long-lived construction in process is capitalized
Balance Sheet
Reports unallocated historical cost

10. Module A ratios reviewed include
Understand Effects of Investments on the Financial Ratios Identified in Module A
Module A ratios reviewed include
ROA
Net profit margin ratio
Asset turnover ratio
Compared to WHAT?

11. Short-term liquidity risk
Current ratio
Quick ratio
Long-term solvency risk
Operating cash flow to capital expenditures ratio
Average age of assets in place

12. Learn the Balance Sheet and Income Statement Adjustments Made by Many Financial Analysts in the Process of Analyzing the Effects of Investments on the Profitability and Risk of the Firm
Persistence of gains/losses and long-lived assets sales and writedowns
Discretion in unrealized gains and losses on available-for-sale securities (i.e., gains trading)

13. End of Module C