LAP: QS-038

Objectives Discuss the elements of a company’s financial statements. Explain the purpose of the notes to the financial statements.

Discuss the elements of a company’s financial statements. Objective

To learn about a company’s financial situationTo learn about a company’s financial situation To get the full story from the best sources of informationTo get the full story from the best sources of information Why Look at the Financial Statements?

Balance Sheet $ “Picture” of financial situation at a particular time“Picture” of financial situation at a particular time Two sides must balance according to the formula: Assets = Liabilities + EquityTwo sides must balance according to the formula: Assets = Liabilities + Equity

Assets—whatever brings value to the company Current assetsCurrent assets Property and equipmentProperty and equipment Other assetsOther assets Parts of the Formula Liabilities—whatever the company owes to others Current liabilitiesCurrent liabilities Long-term liabilitiesLong-term liabilities MORTGAGE $100,000, Equity—net worth of the company

“Movie” of how profitable the business has been“Movie” of how profitable the business has been Shows company’s profit or lossShows company’s profit or loss Income Statement

SalesSales Cost of goods sold/Cost of salesCost of goods sold/Cost of sales Gross profitGross profit Operating expensesOperating expenses Operating profitOperating profit Categories of the Income Statement Interest expenseInterest expense Pre-tax profitPre-tax profit Income-tax expenseIncome-tax expense Net incomeNet income Earnings per shareEarnings per share

“Book” with the details of cash activity“Book” with the details of cash activity Shows where cash came from and where it wentShows where cash came from and where it went Cash Flow Statement

Operations—cash generated for running the businessOperations—cash generated for running the business Investing—cash used for investmentsInvesting—cash used for investments Financing—cash owed to othersFinancing—cash owed to others Categories of Cash Flow Statement

Money is counted when it arrives, not ahead of time.Money is counted when it arrives, not ahead of time. Shows the importance of cash to the companyShows the importance of cash to the company Shows whether the company is relying on cash from operationsShows whether the company is relying on cash from operations More About Cash Flow

Explain the purpose of the notes to the financial statements. Objective

Complete the financial statementsComplete the financial statements Disclose informationDisclose information Make it easier to evaluate the numbersMake it easier to evaluate the numbers Notes to the Financial Statements

Which methods are usedWhich methods are used How the statements have been consolidatedHow the statements have been consolidated Which obligations the company hasWhich obligations the company has What might affect the earnings per shareWhat might affect the earnings per share What the Notes Tell You

Notes have useful information.Notes have useful information. But, sometimes, you have to look hard to find it.But, sometimes, you have to look hard to find it. Can you blame a company for burying something negative?Can you blame a company for burying something negative? What’s the Use? Quick Case

MarkED Acknowledgments Original Developers Christopher C. Burke, Mary C. Hollaway, MarkED Version 1.0 Copyright © 2007 MarkED Resource Center

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