Presentation on theme: "Stockholders Who cares about Financial Statements? Creditors Management & Employees Will I be paid? How good is our investment? How are we performing?"— Presentation transcript:
Stockholders Who cares about Financial Statements? Creditors Management & Employees Will I be paid? How good is our investment? How are we performing? Potential Employees Do I want to work here ?
The 9 Major Indicators from Financial Statements that all Stakeholders Should be Looking for………..
1.Tracking account values over time, from one fiscal period to the next Consistent Reporting Concept – the same accounting procedures must be followed every fiscal period Do you see at company getting better, worse, or staying the same 2.Comparisons of companies from the same industry and similar in size – Competitor! nLook at the Income Statement and compare the Cost of Merchandise Sold %, Gross Profit %, Net Income %, and Expenses %
3. Analysis of Liquidity The Cash Flow Statement Cash on-hand available to be used How are they using cash: to invest in the future of the company to pay off debts to hire more employees t he more cash you have, the more you can do in the future with your business
4. Accounts Receivable Turnover How quickly we are receiving cash owed to us from creditors 5. Accounts Payable Turnover How quickly are we paying debts off as they become due 6. Inventory Turn-over Represents the quantity of inventory that is sold and how quickly it is sold Are we selling our Assets (inventory) and turning the asset into SALES! Is inventory depreciating in value???
7. Analysis of Solvency (opposite of solvency is bankruptcy) Ability to stay in business over the long-term is there demand for products State of the Economy Cash in the bank 8. Debt-Equity Ratio: Total liabilities Total Equity Balance Sheet: Net Worth (assets – liabilities) 3 Factors that effect Equity: Capital, withdrawals, Profit/Loss
9. Profitability Analysis compared to Acceptable Industry Standards The Income Statement 3 sections Revenue Expenses Cost Of Merchandise Sold (initial price of merchandise paid by retailer) This is a Historical Cost concept: merchandise is valued at the price we paid for it, not what it’s worth after time
Income Statement Preparation for a Retailer: THE MATH Revenue: Sales $423,120 Cost of Merchandise Sold Beg. Merchandise Inventory, Jan. 1 $270,480 + Purchases $189,960 Total Cost of Merch Avail. Sale $460,440 - Merch Inventory, Dec 31 $254,640 Cost of Merchandise Sold (COMS) $205,800 Gross Profit on Sales ( Sales-COMS ) $217,320
Acceptable Industry Standards that Guide Accountants’ Analysis Sales 100% Cost of Merchandise Sold not more than 50% Gross Profit on Sales not less than 50% Total Expenses not more than 35% Net Income not less than 15%
Actions to Correct Unacceptable Component Percentages If you have an Unacceptable Component % for Gross Profit Increase Sales Revenue Consider increasing Mark-Up % on inventory however, be careful, because Sales could decrease because the inventory may be too expensive now or even higher than competitor’s prices More marketing
Decrease Cost of Merchandise Sold Consider buying merchandise from a less expensive source (manufacturer or wholesaler), consider less expensive raw materials to manufacture the inventory; consider selling less expensive inventory/different brands Increase Sales Revenue Find ways to sell more! Work with Marketing Department to find creative ways to sell more inventory
If you have an Unacceptable Component % for Total Expenses Review expenses from past fiscal periods and find ways to reduce current expenses
Calculate Cost of Merchandise: not more than 50% Saks: Cost of revenue / Total revenue = 68% Target: Cost of revenue / Total revenue = Wal-Mart: Cost of revenue / Total revenue =
Calculate Gross Profit: not less than 50% Saks: Gross Profit / Total revenue = 32% Target: Gross Profit / Total revenue = Wal-Mart: Gross Profit / Total revenue =