1. Copyright © 2004 South-Western. All rights reserved.15–1 Learning Goals Explain how firms use accounting. Explain how to interpret financial statements. Explain how to evaluate a firm’s financial condition.

2. Copyright © 2004 South-Western. All rights reserved.15–2 Accounting Accounting involves the summary and analysis of a firm’s financial condition How firms use accounting –To inform shareholders and creditors (financial accounting) –bookkeeping, audits –Use financial information to support decisions(managerial accounting)- budgeting, promotion, production Use financial information to maintain control: –Monitor performance of individuals, divisions, and products. –Identify firm’s strengths and weaknesses.

3. Copyright © 2004 South-Western. All rights reserved.15–3 Interpreting Financial Statements Income statement –Revenue – Expenses = Profit/Loss Balance sheet –Assets = Liabilities - Owners Equity –BASIC ACCOUNTING EQUATION Statement of Cash Flows –Three sections –  cash from operations  cash from investing  cash from financing

4. Copyright © 2004 South-Western. All rights reserved.15–4 G:\Fin bootcamp2.ppt

5. Copyright © 2004 South-Western. All rights reserved.15–5 Ike’s Bikes - Offering Three different tours will be offered –“The Fun Tour” - two hours with fun stories and discussions –“The Thigh Burner” – An evening ride from McCall Park to Council Crest Park and back –“The Pub Ride” – a week end tour of Portland Pubs

6. Copyright © 2004 South-Western. All rights reserved.15–6 The Numbers Projecting Only Weekend Fun Tours from October to April –Price $25 per ride Thigh Burners only on weekend evening all year –Price $10 per ride Pub Rides on Weekends –$25 per tour ride Cost $50 pay for each tour

7. Copyright © 2004 South-Western. All rights reserved.15–7 G:\Mgt accounting\Ikes Bikes2.xls

8. Copyright © 2004 South-Western. All rights reserved.15–8 Tektronix 2005 Annual Report LIST NAMES OF ALL GROUP MEMBERS PRESENT TODAY- 1. What are the earnings per share for 2003, 2004 and 2005 (what does this tell you?) 2. What is the company value(total assets) and return on assets 2004, 2005? 3. What is the quick ratio for 2004, 2005 (Why variations)? 4. What is the Return on Equity for 2004 and 2005? 5. What is the return on sales for 2003,2004, and 2005? 6. Is Tektronix using or creating cash?

9. Copyright © 2004 South-Western. All rights reserved.15–9 Responsible Financial Reporting Accounting methods that provide the most accurate indication of a firm’s financial condition –Helps gain credibility with existing and potential stockholders –Makes it easier for managers to detect and correct deficiencies Role of Auditors –Certify that financial reports are accurate and within generally accepted reporting guidelines (GAAP).

10. Copyright © 2004 South-Western. All rights reserved.15–10 Ratio Analysis Evaluate the relationships between financial statement variables –Compare ratios with other companies in the same industry –Assess change in ratios over time –Common ratios  Liquidity  Efficiency  Financial leverage  Profitability

11. Copyright © 2004 South-Western. All rights reserved.15–11 Ratio Analysis Comparing ratios –Sources: Robert Morris Assoc. & Dun and Bradstreet. Limitations of ratio analysis –Firms might operate in more than one industry - makes comparisons difficult. –Accounting practices vary among firms –Seasonality can impact ratios

12. Copyright © 2004 South-Western. All rights reserved.15–12 Next Time Read chapter 16 - finance In text study guide Meet with group – should have : Started gathering financial info. – initial costs, monthly costs, and break even (we will discuss more next class) Library Research on International (five areas…) and exchange rate history. Projection is based on monthly purchase (or sales) with international partner (ex. Mexican rest. – tequila ONLY)

13. Copyright © 2004 South-Western. All rights reserved.15–13 Homework Develop a Sales and Contribution Margin plan monthly for the first year and then yearly for the next year Be prepared to make a presentation of your beginning financial plan next week –Sales and variable costs first 12 months and 2 nd year –No selling, marketing, administrative yet