ANALYSIS OF FOREIGN FINANCIAL REPORTS
Chapter outline
I. reasons to analyze the financial statements of foreign companies include:
• making foreign portfolio investment decisions,
• making foreign merger and acquisition decisions,
• credit decisions on foreign customers,
• evaluate foreign suppliers, and
• benchmarking against foreign competitors.
II. There are several problems analysts can encounter in analyzing foreign financial reports, including:
• Search and to obtain financial information on a foreign company,
• understand the language in which the financial statements are presented,
• the currency in which the monetary amount,
• terminology differences that lead to uncertainty as to the information,
• differences in format that leads to confusion and missing information,
• lack of sufficient information;
• financial statements are not made available in good time,
• accounting differences that prevent the cross-country comparisons, and
• differences in business environments that can make the ratio comparisons meaningless even though the accounting differences eliminated.
III. some of the potential problems can be removed by company through their preparation of convenience translations in any language, currency and possibly even accounting principles are translated for the convenience of foreign readers.
IV. A significant number of investors find that differences in accounting practices in countries prevent their financial analysis and affect their investment decisions. Some analysts manage this problem by translating foreign financial reports to a familiar result, such as US GAAP.
A. a different coping mechanism is to base the analysis on the measure of performance that many accounting issues have been removed, such as EBITDA.
V. analysts should exercise caution in the interpretation of the ratios calculated for foreign companies. What is considered ...
This is Preview only. If you need the solution of this assignment, please send us email with the complete assignment title: ProfessorKamranA@gmail.com
