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Financial Analysis in Hong Kong

Qualitative Examination of Financial Statements (2nd edition) for CEOs and Board Members

By Benny K. B. Kwok

Publication Year: 2013

Financial statements facilitate the communication between corporations and various stakeholders. The integrity, stability and transparency of such communication help preserving Hong Kong as a top global financial centre.To many laypersons, looking through financial statements can be like reading novels in a foreign language, with a sea of jargon obscuring the statements’ true meaning. Financial Analysis in Hong Kong 2nd Edition is a product of experience, feedback and chapter review as well as an update of the changes in practices, guidelines, standards and legislations since its 1st edition in 2008. This 2nd edition provides a clear, concise reference for analysing corporations’ financial statements.Based on the evaluations of published financials, this book is a convenient standalone guide for both novices and financial professionals in the boardroom and beyond.

Published by: Chinese University Press

Title Page, Copyright Page

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pp. 1-4


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pp. v-vi

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Preface to the Second Edition

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pp. vii-x

... As an ongoing process to enhance this title, a vocation education programme based on the first edition was developed during 2008–09. Indeed, seven cycles of Certificate in Financial Analysis in Hong Kong were held by The Chinese University of Hong Kong during 2009–11. Well over a hundred of executives and non-finance professionals have successfully completed the programme with the award of certificates. ...

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pp. xi-xii

... My sincere thanks go to The Chinese University of Hong Kong, for the continued trusts and supports on me in developing a certificate programme based on this book. My sincere appreciation also goes to my editor, Mr. Brian Yu at The Chinese University Press, for his editing skill and tireless hours to make this second edition a reality. ...

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About the Author

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pp. xiii-xiv

Benny K. B. Kwok is one of the world’s most renowned forensic accountants and experts in litigation support, dispute analysis and fraud investigation. He is the author of two other authoritative titles—Forensic Accountancy (2002/2008, 1st and 2nd Editions) and Accounting Irregularities in Financial Statements (2005)—published and in print worldwide. ...


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pp. xv-xvi

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1. Regulatory Framework of Financial Reporting in Hong Kong

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pp. 1-16

Financial analysis refers to the review and evaluation of corporations’ financial statements and other financials. As part of the annual reports, financial statements are prepared by corporations in accordance with the regulatory framework. In order to carry out an effective analysis of financial statements, analysts should possess a general understanding of the ...

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2. Accounting and Auditing in Financial Analysis

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pp. 17-30

Financial analysts involve studying a corporation’s past records of assets, liabilities, profits, sales, cost structure, business volume and quality of management with a view to gauging the degree of a corporation’s position and success and predicting the future trends. All these factors are often reflected in financial statements, and a basic understanding of accounting ...

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3. Key Components of Financial Statements

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pp. 31-55

Financial statements form part of corporations’ annual reports. Other than financial statements, corporations’ annual reports generally include corporate information, financial highlights, corporate governance report, chairman’s statement, directors’ report and audit report. All these information provide valuable insights for analysts to do their work and will ...

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4. Accounting Ratios

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pp. 57-85

As a concept in mathematics, ratios refer to the proportional relationship between two (or more) items, expressed in terms of numbers or percentages. By placing one number over another, a ratio can be computed from any pair of numbers. The top number is called the numerator, and the bottom number is the denominator. ...

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5. Significance of Accounting Ratios in Financial Analysis

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pp. 87-98

Ratios are fractions of numerators and denominators with various acceptable formulae and methods of calculation. Ratio analysis serves as a guide for users of financial statements to assess and evaluate the relative financial performance and strength of a corporation. Accounting ratios measuring the individual aspects of a corporation, such as profitability, ...

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6. Significance of Cash in Financial Analysis

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pp. 99-119

“On paper our corporation is making plenty of money, but in reality we are starving for cash.” Many corporations complain when monies owed to them are overdue. “Making money” and “making profit” are not the same even though we often interchange them in our everyday language. Cash is literally cash at bank and in hand, whereas profit is an accounting concept. ...

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7. Quality of Profits

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pp. 121-139

For the quantitative aspect, analysts generally consider the more profits earned by a corporation the better. Analysts should also consider the qualitative aspect. Quality of profits is a term to express the strength of a corporation’s earning capacity, i.e. the ability to generate profits (and cash flows) which are sustainable. The value of a corporation generally derives from its earning capacity. For analysts, assessing a corporation’s earning ...

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8. Quality of Governance

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pp. 141-161

Corporate governance can be viewed as the systems and processes by which corporations are directed and controlled in response to the rights and expectations of shareholders and other stakeholders. It covers a wide range of subjects including financial reporting disclosures, directors’ responsibilities, role of independent non-executive directors and committees, and corporate social responsibilities. ...

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9. Common-Size Analysis, Trend Analysis,Cost-Volume-Profit Analysis and Common Sense

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pp. 163-184

Analysts apply tools and techniques converting data from financial statements into formats which facilitate the evaluation of a corporation’s financial performance and position, both from year to year and with reference to competitors, industry benchmarks and other relevant statistics. Analysis of financial data calls for technical expertise and professional judgements, and emphasizes the relative significance of data in the context ...

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10. Macro Corporate Analysis

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pp. 185-204

No corporation operates on its own. Analysts look at the macro environment and identify the relevant external factors affecting a corporation as well as how well the corporation’s internal strengths and weaknesses match with these external factors. To survive and prosper in the global market, corporations which align their own objectives and capabilities with the macro environment best should ultimately become ...

Appendix I. List of Corporations Cited

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pp. 205-222

Appendix II. List of Financial Reporting Standards in Hong Kong

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pp. 207-209

Appendix III. List of Auditing Standards in Hong Kong

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pp. 211-214

Appendix IV. Audit Reports of Listed Companies Containing Modified Opinion and/or Explanatory Paragraph

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pp. 215-220

Appendix V. Extracts from Audited Financial Statements of Five Listed Corporations

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pp. 221-254

Appendix VI. Talking Points for Discussion Questions

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pp. 255-262


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pp. 263-266


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pp. 267-272

E-ISBN-13: 9789629969219
Print-ISBN-13: 9789629965747

Page Count: 288
Illustrations: N
Publication Year: 2013