1. Media and Journalism Module Business and Economics For Reporters
9. Understanding key financial statements
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2. Is a Company Viable? How do you find this out?
What can you use to work out whether a company is making money or losing money?
Whether a company is in serious trouble, whether it’s having a short term problem or just coasting along nicely?
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3. This week’s lesson
How to understand vital financial statements and make logical conclusions about what is going on with the finances of the company.
How you can interpret these statements and understand what is going on in a firm.
Annual Report - Key Financial Statements:
Balance sheets
Income statements
Cash flows
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4. Balance Sheets
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5. Balance Sheet
ASSETS
LIABILITIES
EQUITY
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6. Assets
Individual
Village
Company
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7. Assets – Current / Non-current
Assets are generally listed based on how quickly they will be converted into cash.
Current assets:
things a company expects to convert to cash within one year e.g. Inventory.
Non-current assets:
things a company does not expect to convert to cash within a year or that would take longer than one year to sell e.g. fixed assets, like warehouses, trucks, office furniture, property.
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8. Liabilities Money that a company owes others.
money borrowed from a bank to launch a new product
rent for use of a building
money owed to suppliers for materials
payroll a company owes to its employees
environmental cleanup costs
taxes owed to the government
obligations to provide goods or services to customers in the future
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9. Liabilities Current and non-current liabilities
Current liabilities are obligations a company expects to pay off within the year.
Long-term liabilities are obligations due more than one year away – examples can include deferred tax liabilities or provisions for the future.
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10. Equity Equity is sometimes called capital or net worth.
The money left if a company sold all of its assets and paid off all of its liabilities.
This leftover money belongs to the shareholders, or the owners, of the company- Shareholder’s Equity.
Companies may pay out earnings, instead of keeping them –dividends.
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11. Assets = Liabilities + Equity
Balancing the Sheet
Assets = Liabilities + Equity
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12. BER,Ppt9.ppt

13. Income Statements
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14. Income Statements
A report that shows how much money a company earned over a specific time period.
the costs and expenses associated with earning that revenue.
The bottom line shows the company’s net earnings or losses - how much the company earned or lost over the period.
Income statements report earnings per share (“EPS”).
how much money shareholders would receive if the company decided to distribute all of the net earnings for the period.
companies generally keep some earnings to reinvest in the business, so you hardly ever see a complete distribution of earning to shareholders.
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15. Income Statement Components
Gross Revenue / Gross Sales
$ not expected e.g. returns
Gross Profit
Net Sales / Net Revenue
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16. Income Statement Components
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating profit before interest and income tax expenses
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17. Income Statement Components
Interest Income
Other Income
Other Non-Operating Expenses
Operating Profit before Income Tax
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18. Income Statement Components
Income Tax
Net Profit /(Loss)
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19. R&D $
Expenses
Advertising
Taxes
Admin
Net Profit
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20. Did the company make a profit or a (loss)?
The Bottom Line
Did the company make a profit or a (loss)?
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21. Earnings Per Share (EPS)
Net Income / No. of Shares
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22. BER,Ppt9.ppt

23. Cash Flow Statements
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24. Cash Flow Statements
Statement of a company’s inflows and outflows of cash.
Company needs to have enough cash on hand to pay its expenses and purchase assets.
Tells you if the company actually generated cash.
shows changes over time rather than absolute dollar amounts at a point in time.
uses and reorders the information from a company’s balance sheet and income statement.
The bottom line shows the net increase or decrease in cash for the period.
Three Main Sections
operating activities
investing activities
financing activities.
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25. Cash Flow Statement Operating Activities Investing Activities
Analyses a company’s cash flow from net income or losses.
Adjusts net income for any non-cash items (e.g. adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities.
Investing Activities
Shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities.
Financing Activities
Shows the cash flow from all financing activities.
Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow.
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26. Read the Text
Explanation of a company’s financial performance in the quarterly or annual report:
Notes to the Financial Statement” or
MD&A, or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (American)
Company management provides its views:
Management’s opportunity communicate to investors and interested parties:
what the financial statements show and do not show;
important trends and risks.
Notes provide investors with information that the company’s management believes to be necessary to an understanding of its financial condition e.g. changes in financial condition and results of operations.
It is intended to:
help investors to see the company through the eyes of management;
provide context for the financial statements and information about the company’s earnings and cash flows.
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27. Read the Text
Check all the information you can find. As journalists, you have to look carefully at all the information that there is and make deductions based on what you find.
The notes to financial statements have lots of really useful information that you can use. Here are some of the highlights:
Significant accounting policies and practices
Income taxes
Superannuation plans and other pension programs
Stock options
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28. Summary – the WHOLE story
Key Financial Statements
Balance Sheets
Income Statements
Cash Flows
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29. Coming Up! In-depth analysis of financial performance
Scrutinise some data to determine the overall viability of a company.
This will involve:
Analysing returns (return on Assets, Return on Equity)
Analysing working capital
Analysing ratios (return on investment, current ratio)
Understanding capital expenditure
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30. Stretching a point.
Turning the figures on their heads is not an accurate way of measuring growth…
Quentin Blake
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