Financial statement analysis: Difference between revisions

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==Recasting financial statements==

An earnings recast is the act of amending and re-releasing a previously released earnings statement, with specified intent<ref>{{cite web|url=https://www.investopedia.com/terms/e/earningsrecast.asp| title=Earnings Recast}}</ref>.

Investors typically are attempting to understand how much cash the company will generate in the future and its [[rate of profit]] growth, relative to the amount of capital deployed. Analysts may modify ("recast") the financial statements by adjusting the underlying assumptions to aid in this computation. For example, operating leases (treated like a rental transaction) may be recast as capital leases (indicating ownership), adding assets and liabilities to the balance sheet. This affects the financial statement ratios.<ref name="WSF1997"/>

Investors typically are attemptingneed to understand howthe muchability cashof the company willto generate inprofit. theThis, futuretogether andwith its [[rate of profit]] growth, relative to the amount of capital deployed and various other financial ratios, forms an important part of their analysis of the value of the company. Analysts may modify ("recast") the financial statements by adjusting the underlying assumptions to aid in this computation. For example, operating leases (treated like a rental transaction) may be recast as capital leases (indicating ownership), adding assets and liabilities to the balance sheet. This affects the financial statement ratios. <ref>{{cite nameweb|url="WSF1997"http://www.bytestart.co.uk/maximise-price-selling-business.html/ | title=Recasting}}</ref>.

Recasting financial statements requires a solid understanding of accounting theory. Once the cash flow in future years is projected, a discount rate or interest rate will be applied to measure the value of the company and its stock or debt.<ref name="WSF1997"/>}

Recasting is also known as normalizing accounts <<ref>{{cite book|url=https://books.google.co.uk/books?id=wgH4oNnzOvYC&pg=PA107&lpg=PA107&dq=recasting+financials&source=bl&ots=h2LW5L74Cb&sig=ACfU3U2AFRiBPWcWI3J6rNa7qKay-YN53A&hl=en&sa=X&ved=2ahUKEwjLv4fHmIXhAhUlSxUIHRLaCrw4FBDoATAFegQICBAB#v=onepage&q=recasting%20financials&f=false | title=Selling Your Business For Dummies}}</ref>.

==Certifications==