Brief Definition
Financial statement reformulation is the process of reorganizing and adjusting a company’s financial statements to provide a clearer and more meaningful analysis of its financial performance and condition.
Further Explanation
Financial statement reformulation is the process of reorganizing and adjusting a company’s financial statements to provide a clearer and more meaningful analysis of its financial performance and condition. This involves reclassifying and restating certain items to better reflect the economic reality of the company’s operations. Reformulation is often used by analysts and investors to get a more accurate picture of a company’s profitability, liquidity, and risk.
Example:
A company’s income statement shows a large one-time gain from the sale of a subsidiary. To reformulate the financial statement, this gain would be removed from operating income and presented separately to focus on the recurring earnings from the company’s core business. Additionally, interest expense would be moved from operating expenses to financing costs to better analyse operational profitability.