Equity Valuation and Analysis - Mark Moore

energy costs looking to come down in the future and with the continual increases in
R&D expenses, Dow’s earnings are consistently continuing to swell.
* From this point on we will no longer consider Exxon Mobile a direct
competitor within this industry. Exxon Mobile only competes in this
industry on a small percentage of products manufactured.
Accounting Analysis
Shareholders and stakeholders, current and potential, of a firm do not have
direct access to the internal accounting information found in the general ledger. For
this reason, they must rely on the information disclosed in the company’s 10-k filings to
get an overview of the health and direction of a company. Unfortunately, the
information found in a company’s financials is not always an accurate view of the
operations of a company. By allowing flexibility to managers for the purpose of
depicting a true representation of a business and industry, GAAP leaves a fair amount
of latitude in how certain thing are reported – leading to the potential for distortion in
expenses, liabilities, assets, and revenues. This brings forth the necessity for
accounting analysis. Accounting analysis not only uses the company and industry
information, but also estimations and assumptions based on research of current
markets to gauge the accuracy and completeness of the statements. The main goal of
accounting analysis is to determine how confident in the numbers presented on a
company’s financial statements an analyst is.
For the most part, financial analysts follow a six step accounting analysis to
determine the quality and accuracy of a firm’s recordings. In the first step,
Dow Chemical Analysis Page 36