SomenotesonreportsGoodreportshavethefollowingattributes: Structured Logical ClearlywordedMostgroupsmaydrawdifferentconclusionsfromincomestatementandbalancesheet.Thisreporthighlightsthedifficultyofanalyzingfinancialstatementsandabusiness,youneedmoreinformation,backgroundknowledge,currentevents,etc.tostayinformed.SomenotesonreportsGoodrepo1EventstudiesandMarketanomaliesRealizedrateofreturn(orreturn)（實現(xiàn)回報） FirmAstock’sclosepriceon12/31/00was$1,andon12/31/01is$1.15,then Realizedrateofreturnfor2001is15%Requiredrateofreturn(normalrateofreturn)（正常回報，預期回報） IffirmA’sCAPMbetais1.1,risk-freerateis5%,andmarketriskpremiumis6%,thenfirmA’srequiredrateofreturnaccordingtoCAPM 0.05+1.1*0.06=11.6%Abnormalrateofreturn(orabnormalreturn)（超常回報） 15%-11.6%=3.4%for2001EventstudiesandMarketanoma2PortfolioreturnsandPortfolioabnormalreturnsin2001-ComparedtoCAPMdemandsRealizedrateofreturnRequiredrateofreturn(CAPM)AbnormalreturnStockA15%11.6%3.4%StockB20%15%5.0%StockC-5%10%-15%(Equally-weighted)beta-adjustedabnormalreturntotheportfolio:(3.4+5.0-15)/3=-2.2%PortfolioreturnsandPortfoli3PortfolioreturnsandPortfolioabnormalreturnsin2001–ComparedtothegeneralmarketRealizedrateofreturnRealizedreturnonDJ30IndexAbnormalreturnStockD15%5%10%StockE20%5%15%StockF-5%5%-10%(Equally-weighted)market-adjustedabnormalreturntotheportfolio:(10+15-10)/3=5%PortfolioreturnsandPortfoli4PortfolioreturnsandPortfolioabnormalreturnsin2001–Comparedtothegeneralmarket–AnothercaseRealizedrateofreturnRealizedreturnonDJ30IndexAbnormalreturnStockG10%5%5%StockH9%5%4%StockI-15%5%-20%(Equally-weighted)market-adjustedabnormalreturntotheportfolio:(5+4-20)/3=-3.67%PortfolioreturnsandPortfoli5HedgingstrategyandhedgereturnSupposethat,Godforbid,onJan.1,2001,youknowtheendresultsinthetwopreviousslides,thenyoubuystocksD,E,F(using$1M)andsellshort（空賣）stocksG,H,I(for$1M).Nowyouhaveahedgeportfoliowithsixstocks.Yourinvestmentinthishedgeportfolioiszerodollar.OnDec.31,2001,yourrealizedreturnis(5-(-3.67))=8.67%.Thisisyourhedgereturn.Hedgingstrategyandhedgeret6EventstudiesandMarketanomaliesWeknow:NetIncome=Cashflowfromoperation(cashearnings)+accruedearningsOnApril1ofeveryyear,werankallstocksontheratioofaccrualearnings/totalassets,thenwebuystockswhoseratiosareinthelowest10%ofallstocks(lowaccrualstock),andsellshortstockswhoseratiosareinthehighest10%ofallstocks(highaccrualstocks).EventstudiesandMarketanoma7Chap6Some-notes-on-reports財務報表分析課件8Otheranalogical(類似）anomaliesP/BanomalyP/EanomalyFinancialstatementanalysisisabout1)identifyingmis-valuedindividualstocks,and2)identifyingaccounting-basedsystematicmarketanomaliesOtheranalogical(類似）anomalies9OutlinefortherestofthiscourseAnalyzeaccountsinfinancialstatements: Themeasurementofeachaccount Earningsmanagementthroughspecificaccounts ValuationimplicationsofspecificaccountsRatioanalysis: Profitabilityanalysis Growthanalysis LiquidityanalysisandsolvencyanalysisOutlinefortherestofthisc10Earningsmanagement–commontechniquesSelectingaccountingprinciplesorstandardswhenGAAPallowsachoice,e.g.（例如的簡寫）,LIFO/FIFOforinventorycosting(先進先出/后進先出）Makingestimatesintheapplicationofaccountingprinciples,e.g.,baddebtsratio（壞帳準備率）Timingtransactionsorconstructingtransactionstoallowrecognizing a)revenuesorexpenseinregularoperation,e.g.,earlydeliveryofproducts（提前送貨） b)non-recurringorone-timeitems,e.g.,takeassetimpairmentcharge（資產減值）

Earningsmanagement–commont11Chapter6:RevenuerecognitionandAccountreceivableRevenuerecognitionprinciplesRecognizerevenuesatthetimeofsaleAccountreceivableandbaddebtsManageearningsthroughaccountreceivablesRecognizerevenuesatatimeotherthanthetimeofsaleManageearningsthroughrevenuerecognitionChapter6:Revenuerecognition12Chapter6:RevenuerecognitionandAccountreceivableSalesarethecoreactivityofacompanyCreditsalesareusedtopromotesalesOnceacompanyhascreditsales,itrunstheriskofsomecustomersnotpayingSomecustomersnotpayinggeneratesbaddebtsButnocreditsalesisevenworse,becausethecompanylosesbusinessChapter6:Revenuerecognition13Chap6Some-notes-on-reports財務報表分析課件14Revenuerecognition:RealizationprincipleAfirmhasperformedall,orasubstantialportionoftheservicesitexpectstoprovideor,inthecaseofproductwarranties,canforecastwithreasonableprecisionthecostofprovidingfutureservices-obligationsThefirmhasreceivedcash,areceivable,orsomeotherassetcapableofreasonablyprecisemeasurementor,ifthefirmhasofferedtoletthecustomerreturntheproductforrefund,thefirmcanestimatethereturnswithreasonablyprecision-benefitsRevenuerecognition:Realizati15RecognizerevenuesatthetimeofsaleAssumethefollowingarethebalancesofI-sellcompanyonJan.1,2001.

AccountReceivableAllowance(reserves)forbaddebts（壞帳準備）CustomergroupA:$1M(3monthsold)CustomergroupB:$3M(6monthsold)$4M$70,000$70,000Recognizerevenuesatthetime16In2001,I-Sellcompanysold$2MgoodstocustomergroupConaccount（賒帳）onJuly1,2001,sothecompany:Dr.AccountReceivable2MCr.SalesRevenue2M

ThecompanyexpectstocollectcashfromthiscustomergroupinJune2002.Assumetheonlycost/expenseitemin2001isCOGSof$1.5M,thentheincomestatementfor2001:Revenue2M-COGS1.5MNetIncome0.5MIn2001,I-Sellcompanysold$17InMatch2002,customerI-bankruptfromcustomergroupCdefaults（拒付）onthemoneyheowesthecompany,$15,000.Whatshallthecompanydo? Dr.baddebtexpense15,000（壞帳費用） Cr.AccountReceivable15,000Whatiswrongwiththistreatment?Whichaccountingprincipledoesthistreatmentviolate?InMatch2002,customerI-bank18Sothedirectwrite-offmethod（直接注銷法）ofbaddebtsviolatesthematchingprincipleofaccounting.Themanagerin2001couldsellproductslikecrazybymakingunsafecreditsales,whichresultsinhighrevenuesandhighearnings.TheManagerthencollectshuge-amountofearnings-basedbonusandleavesthecompany.IfthecompanychangesitsmanageronJan.1,2002,thenthenewmanagertakestheblameforbadjudgmentmadebyorbadbehavioroftheoldmanager.Therefore,weshouldrecognizethebaddebtexpenseintheyearthecreditsaleismade,i.e.,in2001,notin2002whenthedefaultactuallyoccurs.Butin2001,wedonotknowwhetheranycustomer,letalone（更別提）aparticularcustomer,willdefault.Sowehavetoestimatebaddebtexpenseaccordingtoourexperience.Sothedirectwrite-offmethod19Allowancemethod（預提法）Letusestimatebaddebtexpenseatthetimeofsalesin2001.AccordingtoI-Sellcompany’spastexperience,1%oftotalnewaccountreceivablesfromcurrentyearcreditsaleswillultimatelybecomeuncollectible.In2001,$2Mcreditsales*1%=20,000Thisamountshouldgointo2001incomestatementsinceitmatchestherevenuesrecognizedin2001.Revenue2M-COGS1.5M-Baddebtexpense:0.02MNetIncome0.48MAllowancemethod（預提法）Letuse20Allowancemethod-JournalentriesWhenthecreditsalewasmadein2001,

Dr.AccountReceivable2M Cr.Revenue2M Dr.Baddebtexpense20,000Cr.Allowanceforbaddebts20,000Understandallowance:Sincethebirthofachild,eachyeartheparentsput$3,000intoabankaccountearmarkedforthechild’scollegeeducation.Wemaycallthemoneyinthebankaccountallowance.Basically,allowancemethodputssomethingasidetoprepareforaneventtooccurinthefuture.Allowancemethod-Journalentri21Allowancemethod-T-accountsOnDec.31,2001,theT-accountslooklikethis:AccountReceivableAllowanceforbaddebtsCustomergroupA:$1M(15monthsold)CustomergroupB:$3M(21monthsold)$4MCustomergroupC:$2M(6monthsold)$6M$70,000$70,000$20,000$90,000Allowancemethod-T-accountsOn22Allowancemethod-balancesheetCurrentassets Cash### Accountreceivable6M Less:allowanceforbaddebts0.09M Netaccountreceivable5.91M Inventory### ……Allowancemethod-balancesheet23Chap6Some-notes-on-reports財務報表分析課件24Chap6Some-notes-on-reports財務報表分析課件25Chap6Some-notes-on-reports財務報表分析課件26Estimatingbaddebtexpense-twomethodThemethodweusedtoestimatebaddebtexpenseiscalledpercentage-of-salesmethod.Thatis,basedonourhistoricalexperience,weknowNEWcreditsalesmadeinthecurrentyearwillhas1%uncollectible.Anothermethodiscalledagingmethod.Estimatingbaddebtexpense-tw27Estimatebaddebtexpense-agingmethodOn12/31/01Estimatebaddebtexpense-agin28WelookattheaccountreceivableT-accountonDec.31,2001,andsaytoourselves,“Gee,thelongeracustomerowesusmoney,themorelikelyhewillintheenddefaults”.Thenweshouldestimatethepossibilityofdefaultsforthethreecustomergroupsseparately.Chap6Some-notes-on-reports財務報表分析課件29GroupAcctReceivableDefaultrateBaddebtsexpensesB3M(21monthsold)3%90,000A1M(15monthsold)2%20,000C2M(6monthsold)1%20,000Total6M130,000GroupAcctReceivableDefaultra30Remember,$130,000isallbaddebtexpensesweshouldrecognizeonouroutstandingaccountreceivables.ButuptoJan.1,2001,wealreadyrecognized$70,000.Allowanceforbaddebts$70,000$130,000$???Remember,$130,000isallbad31Sothebaddebtexpensefor2001isNOT$130,000,itis$60,000=$130,000-$70,000

Dr.Baddebtexpense60,000 Cr.Allowanceforbaddebts60,000Then2001I/SandB/SareRevenue2M-COGS1.5M-Baddebtexpense:0.06MNetIncome0.44MCurrentassetsCash###Accountreceivable6MLess:allowanceforbaddebts0.13MNetaccountreceivable5.87MInventory###……Sothebaddebtexpensefor2032InMatch2002,customerI-bankruptfromcustomergroupCdefaultsonthemoneyheowesthecompany,$15,000.Whatshallthecompanydo?Underdirectwrite-offmethod,theydo: Dr.baddebtexpense15,000 Cr.AccountReceivable15,000Thisrecognizesexpenseof2001in2002.Underallowancemethod,theydo: Dr.Allowanceforbaddebts15,000Cr.Accountreceivable15,000Thisrecognizesexpenseof2001in2001.Becausethisjournalentryhasnotimpacton2002incomestatement,andnonetimpacton2002balancesheet.(why?)Perfect!!!InMatch2002,customerI-bank33OptimalcreditsalespolicyMostcompanieshavetousecreditsalestosurviveOnceyouhavecreditsales,therewillbeuncollectiblesAlthoughitsoundsodd（奇怪）,theoptimalamountofuncollectibleisNOTzeroBecauseifyouwanttomakesureeverycustomerpays,1)youneedtospendcostlyresourcestoscreen（識別）customers;2)yourejectcustomerswhodonotpassthescreeningbutwouldultimatelypay;3)customersdonotdobusinesswithyoutobeginwithOptimalcreditsalespolicyMos34OptimalcreditsalespolicyYoubenefitfromsellingtoagroupofcustomersiftheuncollectiblefromthisgroupislessthanyourgrossprofitfromsellingthegoodstothisgroup.Assumethisgroupbuysfromyouonaccount100%AdditionalRevenuesAdditionalCOGSAdditionalGrossProfitAdditionalExpense(otherthanbad-debtexpenserelatedtothisnewgroup)$0*BaddebtexpenserelatedtothisnewgroupAdditionalNetIncome*Assumethiscategoryofexpensesisconstantwithorwithoutsellingtothisnewgroup,sotheadditionalportioniszero)OptimalcreditsalespolicyYou35Earningsmanagementusingbad-debtallowanceGroupAcctReceivableDefaultrateBaddebtsexpensesB3M(21monthsold)3%90,000A1M(15monthsold)2%20,000C2M(6monthsold)1%20,000Total6M130,000Earningsmanagementusingbad-36Earningsmanagementusingbad-debtallowanceGAAPrequirescompaniestoestimatedefaultratesbasingon1)historicalexperience,2)industrynorm（規(guī)范）,3)otherconsiderations.Butthediscretion（選擇余地）lefttomanagementisstillbig.Inthepreviousexample,supposemanagersdecreasesdefaultratesby0.5%,baddebtexpensewilldecreaseby$30,000,thennetincomewillbe$0.47Minsteadof$0.44M.Thisactmayincreasemanagers’bonusandcompanystockprices.Notethatinthisexample,wehaveassumedthatthetruedefaultratesaretheoriginalones.Earningsmanagementusingbad-37SearsRoebuckDocompaniesalwaysunderestimatebaddebtratiostoincreaseearnings?NO!SupposeyouareArthurMartinezin1993.YoujustbecameCEOofSearsRoebuck.YouwanttoshowthatyouareTHEman!Soyouwanttohaveincreasesinearningsoverthenextfewyears.Whatcanyoudofromaccountreceivable’sperspective?SearsRoebuckDocompaniesalwa38SearsRoebuckSearsRoebuckhasalargecreditcarddivision(intheU.S.,manylargeretailershavecreditcarddivisions).ForSearsRoebuck,creditcardholders’unpaidaccountbalancesareaccountreceivables.SoSearshastoestimatebaddebtexpenses.ShortlyafterMr.Martineztookthehelm,Searsincreaseditsallowanceforbaddebtsto$2billion,afarbiggeramountthatotherretailers.SearsRoebuckSearsRoebuckhas39SearsRoebuckOfcourse,whenSearsincreasedallowance,ithadtodebitbaddebtexpense,whichinturnvastlydecreased1993netincome.ButitwasokforMr.Martinezbecausehejusttookoverthejob.Noonewouldblamehimforabadfiscalyear1993.In1994,1995,and1996,actualcustomerdefaultwasmuchsmallerthan(falsely)anticipatedin1993.Sotheallowancewastoolarge.Remember,everytimeacustomerdefaults,company Dr.Allowanceforbaddebts### Cr.Accountreceivable###SearsRoebuckOfcourse,whenS40SearsRoebuckNowbecausein1994-1996,therewasalwaysenoughbalanceintheallowanceaccount,Searsdidnotneedtoestimatenewbaddebtexpenses.Sointhesethreeyears,Sears Dr.Baddebtexpenses$0(#forsimplifiedillustrationonly) Cr.Allowanceforbaddebts$0Whatwastheeffects?Inthesethreeyears,Sears’earningswerehigherthanifithadnottakethebigallowancein1993.Mr.Martinezachievedhisgoal!!!SearsRoebuckNowbecausein1941RevenuerecognitionatatimeotherthanthetimeofsaleLong-termcontractors: Percentage-of-completionmethod CompletedcontractmethodInsurancecompaniesFranchisors: Installmentmethod CostRecoverymethodRevenuerecognitionatatime42Long-termcontract-percentage-of-completionmethodAconstructioncompanyisbuildingabridgeforacitygovernment;1)Thetotalcostofthebridgecanbereasonablyestimated,and2)Thetotalpricechargedtothecitygovernmentisset,and3)Ittakesthreeyearstofinishthebridge.Note:inthiscase,thetimeofsaleisattheendofthethirdyear,whenthebridgeiscompletedandpassedtothecitygovernmentforuse.Underpercentage-of-completionmethod,ifthebridgeis30%doneinyear1,thecompanycanrecognizerevenuesandcosts30%oftheirrespectivetotals.Long-termcontract-percentage-43Long-termcontract-CompletedcontractmethodInthebridgeexample,undercompletedcontractmethod,inthefirsttwoyears,thecompanydoesnotrecognizeanyrevenuesorcosts.Inthethirdyearwhenthebridgeisfinished,thecompanyrecognizestotalrevenuesandtotalcostsinthird-yearincomestatementallatonce.Note:underbothmethods,thecompanymaystillreceivecashfromthegovernmentinthefirsttwoyearsaspartialpayments.Thecashpaymentsjustdonotshowupinfirsttwo-years’incomestatementsLong-termcontract-Completedc44InsurancecompaniesCompanyReceivepremiumPaymentof$100,InvestinstockmarketCompanyReceivepremiumPaymentof$100,Investinstockmarket;ReceivedividendFromyear1Stockinvestmentof$10Investthe$10onStockmarketagainSimilartransactionIfpolicyholdersrunIntoaccident,payCoverageof$1,000;IfpolicyholdersStopinsurance,thenNothingoccurs;ThecompanykeepsAllthemoney.Year1Whendoestheinsurancecompanyrecognizerevenues?InsurancecompaniesCompanyCom45InsurancecompaniesWhenthepolicyholdersterminatetheircoveragebecausetheclaimofcoverageisveryuncertain.Forexample,acaraccidentmayresultinminorinjuryonly,ormaycausedeath.Oreachperiodtheinsurancecoverageisprovided.Despitetheuncertaintyaboutoneparticularpolicyholders,asapool,theprobabilityofaccidentsandtheamountofdamagecanbereasonablyestimated.InsurancecompaniesWhenthepo46FranchisorsMcDonald’s(franchisor)inmanyplacessellsfranchiserightstoindividuals(franchisees).FranchiseescanthenuseMcDonald’sname,advertisingandotherservices.Inreturn,FranchiseepaysMcDonald’safranchisefeeof$50,000.Sincesmallbusinesscannotaffordtopayatonce,thefranchisefeeispaidoverfiveyears.ShouldMcDonald’srecognizesthe$50,000asrevenuesatthebeginning.FranchisorsMcDonald’s(franchi47FranchisorsTheproblemisthatmostsmallbusinessesfailand,inthiscase,McDonald’swon’tbeabletocollecttheunpaidfranchisefees.Comparedtothenumberofpolicyholdersofaninsurancecompany,thenumberoffranchiseesistoosmalltomakeastatisticallyrobust（堅固可靠）estimate.FranchisorsTheproblemisthat48FranchisorsFranchisorscanuseeitheroftwomethods.Installmentmethod:everytimeitreceivescashpayment,recognizesrevenuesandproportionatelyrecognizeexpensesCost-Recovery-Firstmethod:Everytimeitreceivescash,recognizestheamountofcashasrevenuesandthesameamountofexpenses(sonetincomeiszero),untilallcosthasbeenrecognized,thenstarttoshownetincome.FranchisorsFranchisorscanuse49Earningsmanagementthroughrevenuerecognition-Xerox1997,Analysts’consensusearningsforecastforXeroxis$1.99pershare;Xerox’sactualEPSwithoutearningsmanagementwouldbe$1.65;butXeroxreported$2.021998,Analysts’consensusearningsforecastforXeroxis$2.33pershare;Xerox’sactualEPSwithoutearningsmanagementwouldbe$1.72;butXeroxreported$2.331999,Xerox’sreportedearningsbeatanalysts’consensusearningsforecastbyonecent;Xerox’sactualEPSwithoutearningsmanagementwouldbe50centslower.How?Earningsmanagementthroughre50Earningsmanagementthroughrevenuerecognition-XeroxXeroxnotonlysellscopymachine,italsorentsoutcopyingequipments.Sayin1997,XeroxsignedarentalcontractwithIMBtorentitequipmentsforfiveyearswithannualrentalfeeof$5M.UnderGAAP,thisisshort-termrentalandXeroxrecognizes$5Mrentalrevenueeachyear.ButXeroxclassifiedthistransactionaslong-termlease.UnderGAAP,Xeroxrecognizestherentrevenuesforallfivefutureyearsascurrentyearrevenues.Thatis,Xeroxrecognizes$25Mas1997revenuesfromthistransaction.Earningsmanagementthroughre51Earningsmanagementthroughrevenuerecognition-XeroxDuringthisperiod,Xeroxstockpricesroseto$60.Xeroxexecutivescashedoutstockoptionsvaluedat$35M.Inmid-2000,SEClaunchedaninvestigationofXeroxaccounting.In2002,XeroxwasfinedbySECfor$10M.Xeroxrestatedinthepastfiveyears,itoverstatedrevenuesby$6billion.Earningsmanagementthroughre52$60Xeroxstockprices$60Xeroxstockprices53Earningsmanagementthroughrevenuerecognition-ComputerAssociatesEarningsmanagementthroughre54Chap6Some-notes-on-reports財務報表分析課件55CA-ComputerAssociates,orCreativeAccounting?CAisthefourthlargestindependentsoftwarecompanyintheworldatthetime.Itprovidescustomerssoftwaretorunmainframecomputers.Whenitsignsacontract,sayathree-year’scontract,withacustomer,itchargesaninitialfeeof,say,$3Mforthecustomertouseitssoftwareforayear.Inthesecondandthirdyear,CAchargesthecustomerforanannualfeeof,say,$300,000andprovidestechsupport.CA-ComputerAssociates,orCre56CA-ComputerAssociates,orCreativeAccounting?Boththeinitialfeesandtheannualfeescanbeclassifiedintoeitherlicensefeeormaintenancefee.Ifclassifiedaslicensefees,the$3.6Mfeescanberecognizedasrevenuesinthefirstyearofthecontract.Ifclassifiedasmaintenancefees,the$3.6Mfeeshavetobeequallyrecognizedinthethreeyearsofthecontract,$1.2Meachyear.CAchosetheformerwhilemostsoftwarecompanieschosethelatter.CA-ComputerAssociates,orCre57CA-ComputerAssociates,orCreativeAccounting?Butitisdifficulttogetnewcontractsandshowsimpressiverevenuegrowth.SoCAkeptbuyingsmallsoftwarecompanies.AfterCAboughtasoftwarecompanies,ittreatsthecompanies’existingcontractsasCA’snewcontracts.Risingrevenuesandnetincomesledtohigherandhigherstockprices.CAuseditshighstockpricestobuymoresoftwarecompanies.Thistrickgoesonandon…… untiltherearenomoresoftwarecompaniestobuy!CA-ComputerAssociates,orCre58CA-ComputerAssociates,orCreativeAccounting?OnNovember18,2002,facingSECinvestigationandshareholderlawsuits,thefounderandChairmanofCA,CharlesWang（王嘉廉）,announcedhisretirement.CA-ComputerAssociates,orCre59Earningsmanagementthroughrevenuerecognition-BartertransactionAOLsignedacontractwithAtoplaceadvertisementsonAmazonwebsite,thechargesarevaluedat$15Mayear.Athenrecognizesrevenuesof$15M.Butinthesametime,AalsoplacesadvertisementsonAOLwebsite,valuedat$15M.Thisiscalledbartertransaction(以物易物）。Earningsmanagementthroughre60Earningsmanagementthroughrevenuerecognition-BartertransactionBothcompaniesrecognizeadvertisingrevenuesof$15Mandadvertisingexpensesof$15M.Nonetimpactonearnings.Butinthebubbletime,companieshadlossesanywayandconventionalP/Epricingmethoddoesnotapplytolossfirms.SoinvestmentcommunityusesPrice-to-Revenueratiotopricestocks.Nowbartertransactionmatters!!!Earningsmanagementthroughre61SomenotesonreportsGoodreportshavethefollowingattributes: Structured Logical ClearlywordedMostgroupsmaydrawdifferentconclusionsfromincomestatementandbalancesheet.Thisreporthighlightsthedifficultyofanalyzingfinancialstatementsandabusiness,youneedmoreinformation,backgroundknowledge,currentevents,etc.tostayinformed.SomenotesonreportsGoodrepo62EventstudiesandMarketanomaliesRealizedrateofreturn(orreturn)（實現(xiàn)回報） FirmAstock’sclosepriceon12/31/00was$1,andon12/31/01is$1.15,then Realizedrateofreturnfor2001is15%Requiredrateofreturn(normalrateofreturn)（正常回報，預期回報） IffirmA’sCAPMbetais1.1,risk-freerateis5%,andmarketriskpremiumis6%,thenfirmA’srequiredrateofreturnaccordingtoCAPM 0.05+1.1*0.06=11.6%Abnormalrateofreturn(orabnormalreturn)（超常回報） 15%-11.6%=3.4%for2001EventstudiesandMarketanoma63PortfolioreturnsandPortfolioabnormalreturnsin2001-ComparedtoCAPMdemandsRealizedrateofreturnRequiredrateofreturn(CAPM)AbnormalreturnStockA15%11.6%3.4%StockB20%15%5.0%StockC-5%10%-15%(Equally-weighted)beta-adjustedabnormalreturntotheportfolio:(3.4+5.0-15)/3=-2.2%PortfolioreturnsandPortfoli64PortfolioreturnsandPortfolioabnormalreturnsin2001–ComparedtothegeneralmarketRealizedrateofreturnRealizedreturnonDJ30IndexAbnormalreturnStockD15%5%10%StockE20%5%15%StockF-5%5%-10%(Equally-weighted)market-adjustedabnormalreturntotheportfolio:(10+15-10)/3=5%PortfolioreturnsandPortfoli65PortfolioreturnsandPortfolioabnormalreturnsin2001–Comparedtothegeneralmarket–AnothercaseRealizedrateofreturnRealizedreturnonDJ30IndexAbnormalreturnStockG10%5%5%StockH9%5%4%StockI-15%5%-20%(Equally-weighted)market-adjustedabnormalreturntotheportfolio:(5+4-20)/3=-3.67%PortfolioreturnsandPortfoli66HedgingstrategyandhedgereturnSupposethat,Godforbid,onJan.1,2001,youknowtheendresultsinthetwopreviousslides,thenyoubuystocksD,E,F(using$1M)andsellshort（空賣）stocksG,H,I(for$1M).Nowyouhaveahedgeportfoliowithsixstocks.Yourinvestmentinthishedgeportfolioiszerodollar.OnDec.31,2001,yourrealizedreturnis(5-(-3.67))=8.67%.Thisisyourhedgereturn.Hedgingstrategyandhedgeret67EventstudiesandMarketanomaliesWeknow:NetIncome=Cashflowfromoperation(cashearnings)+accruedearningsOnApril1ofeveryyear,werankallstocksontheratioofaccrualearnings/totalassets,thenwebuystockswhoseratiosareinthelowest10%ofallstocks(lowaccrualstock),andsellshortstockswhoseratiosareinthehighest10%ofallstocks(highaccrualstocks).EventstudiesandMarketanoma68Chap6Some-notes-on-reports財務報表分析課件69Otheranalogical(類似）anomaliesP/BanomalyP/EanomalyFinancialstatementanalysisisabout1)identifyingmis-valuedindividualstocks,and2)identifyingaccounting-basedsystematicmarketanomaliesOtheranalogical(類似）anomalies70OutlinefortherestofthiscourseAnalyzeaccountsinfinancialstatements: Themeasurementofeachaccount Earningsmanagementthroughspecificaccounts ValuationimplicationsofspecificaccountsRatioanalysis: Profitabilityanalysis Growthanalysis LiquidityanalysisandsolvencyanalysisOutlinefortherestofthisc71Earningsmanagement–commontechniquesSelectingaccountingprinciplesorstandardswhenGAAPallowsachoice,e.g.（例如的簡寫）,LIFO/FIFOforinventorycosting(先進先出/后進先出）Makingestimatesintheapplicationofaccountingprinciples,e.g.,baddebtsratio（壞帳準備率）Timingtransactionsorconstructingtransactionstoallowrecognizing a)revenuesorexpenseinregularoperation,e.g.,earlydeliveryofproducts（提前送貨） b)non-recurringorone-timeitems,e.g.,takeassetimpairmentcharge（資產減值）

Earningsmanagement–commont72Chapter6:RevenuerecognitionandAccountreceivableRevenuerecognitionprinciplesRecognizerevenuesatthetimeofsaleAccountreceivableandbaddebtsManageearn