Question 1:

Not all items included in a financial statement analysis are found on the Income Statement, Statement of Owner’s Equity, Balance Sheet, or the Statement of Cash Flow. However, the item may be critical in determining the financial stability and health of an organization. This discussion question allows you to evaluate the treatment of a specific item not located on the aforementioned financial statement.

Explain how off-balance-sheet financing items should be treated for financial analysis purposes.

Question 2:

Companies pursue intercompany activities for several reasons including diversification, expansion, and competitive opportunities and returns. This discussion question considers our analysis and interpretation of these inter-company activities as reflected in financial statements. From an analysis perspective, it may be required to apply analytical adjustments to these disclosures or figures to improve our analysis.

When a balance sheet reports a substantial dollar amount for goodwill, discuss what we should be concerned with in our analysis.

Question 3:

This chapter focuses on credit analysis. Specifically, the module discusses the two major sections of credit analysis; liquidity analysis and solvency analysis. For this discussion question, the focus is liquidity. Liquidity refers to the availability of resources to meet short-term cash requirements. Please keep this definition in mind as you answer the following question.

Why is liquidity important in the analysis of financial statements? Explain its importance from the viewpoint of more than one type of user.