reformulation

Examples of reformulation in the following topics:

• Evaluating Financial Statements

  • Prior to the calculation of financial ratios, reported financial statements are often reformulated and adjusted by analysts to make the financial ratios more meaningful as comparisons across time or across companies.
  • In terms of reformulation, one common reformulation is to divide reported items into recurring or normal items and non-recurring or special items.

• Using Financial Statements to Understand a Business

  • Ideally, the analysis consists of reformulating the reported financial statement information, analyzing the information, and adjusting it for measurement errors.
  • Then the various calculations are performed on the reformulated and adjusted financial statements.
  • An example of a reformulation used on the income statement occurs when dividing the reported items into recurring or normal items and non-recurring or special items.

• Debt to Equity

  • On a balance sheet, the formal definition is that debt (liabilities) plus equity equals assets, or any equivalent reformulation.
  • Debt to equity can also be reformulated in terms of assets or debt: D/E = D /(A – D) = (A – E) / E

• Balance Sheet Analysis

  • Balance sheet analysis consists of 1) reformulating reported Balance sheet, 2) analysis and adjustments of measurement errors, and 3) financial ratio analysis on the basis of reformulated and adjusted Balance sheet.