1. Financial Statement Analysis I: Chapter 1 ©NACM

2. Course Structure A. The Textbook B. The Nature of an On-line Course C. What the Course Covers D. What is in the Lectures E. The Problem Sets F. Course Layout G. Testing 2Slide 1-1

3. Why You Need Financial Analysis A.Credit Worthiness Defined – Assessing the Costs of Granting Credit 1. Carrying Costs 2. Collection Costs 3. Default Costs a. Likelihood of Default b. Loss in Default B.When You Need Financial Analysis and When You Don’t 1. The Role of Exposure 2. An Example Credit Decision Based on Costs Slide 1-2

4. Financial Analysis and the Nature of Various Claims Stakeholder Maturity of Claim Nature of Claim Stockholder Long Variable Bondholder Long Fixed Trade Creditor Short Fixed An Example of Appropriate Emphasis in Financial Analysis for Trade Credit Granting Decisions Slide 1-3

5. Chapter Notes General Chapter Notes A. Level of Financial Statements Generally Analyzed in this Text B. Liability Issues and their Effect on Financial Reporting 1. Data are from the Past 2. Historic Book Values not Market Values Notes for Particular Parts of Chapter 1 A. Types of Statements in the Standard Accounting Report B. Conflicts Faced by Auditors C. Broad GAAP Rules D. Accrual Accounting Slide 1-4

6. Caveats in Analyzing Accounting Data Accounting Statements Reflect only Past Data Historic Book not Market Values are Presented Financial Statements are Subject to Choices within GAAP Accrual Accounting is Not Cash Flow Statements May Not Follow GAAP Slide 1-5