Ch. 3 – Financial Statements
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The Annual Report
Balance sheet – provides a snapshot of a firm’s financial position at one point in time.
Income statement – summarizes a firm’s revenues and expenses over a given period of time.
Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.
Statement of stockholders’ equity – shows how much of the firm’s earnings were retained, rather than paid out as dividends.
How presentation will benefit audience: Adult learners are more interested in a subject if they know how or why it is important to them.
Presenter’s level of expertise in the subject: Briefly state your credentials in this area, or explain why participants should listen to you.
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Balance Sheet
What are the resources of the company?
What are the company’s existing obligations?
What are the company’s net assets?
Lesson descriptions should be brief.
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Balance Sheet
Summary of the financial position of a company at a particular date
Assets: cash, accounts receivable, inventory, land, buildings, equipment and intangible items
Liabilities: accounts payable, notes payable and mortgages payable
Owners’ Equity: net assets after all obligations have been satisfied
Lesson descriptions should be brief.
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Accounting Equation
Assets = Liabilities + Owners’ Equity
Sources of Funding
Creditors’
claims
against
resources
=
+
Owners’
claims
against
resources
Resources
Resources
to use to
generate
revenues
Example objectives
At the end of this lesson, you will be able to:
Save files to the team Web server.
Move files to different locations on the team Web server.
Share files on the team Web server.
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Current Assets
Cash
Marketable Securities
Accounts Receivable
Inventories
Prepaid Expenses
Fixed Assets
Machinery & Equipment
Buildings and Land
Other Assets
Investments & patents
Assets
Liabilities (Debt) & Equity
Current Liabilities
Accounts Payable
Accrued Expenses
Short-term notes
Long-Term Liabilities
Long-term notes
Mortgages
Equity
Preferred Stock
Common Stock (Par value)
Paid in Capital
Retained Earnings
Shows the results of a company’s operations over a period of time.
What goods were sold or services performed that provided revenue for the company?
What costs were incurred in normal operations to generate these revenues?
What are the earnings or company profit?
Income Statement
Income Statement
SALES
– EXPENSES
= PROFIT
Revenue
Income Statement
SALES
– EXPENSES
= PROFIT
Cost of Goods Sold
Operating Expenses
(marketing, administrative)
Financing Costs
(Interest Expense)
Taxes
Income Statement
SALES
– Cost of Goods Sold
GROSS PROFIT
– Operating Expenses
OPERATING INCOME (EBIT)
– Interest Expense
EARNINGS BEFORE TAXES (EBT)
– Income Taxes
NET INCOME
– Stock Dividends
– NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
SALES
– Cost of Goods Sold
GROSS PROFIT
– Operating Expenses
OPERATING INCOME (EBIT)
– Interest Expense
EARNINGS BEFORE TAXES (EBT)
– Income Taxes
NET INCOME
– Stock Dividends
– NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
Operating
Activities
SALES
– Cost of Goods Sold
GROSS PROFIT
– Operating Expenses
OPERATING INCOME (EBIT)
– Interest Expense
EARNINGS BEFORE TAXES (EBT)
– Income Taxes
NET INCOME
– Stock Dividends
– NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
Financing
Activities
Statement of Cash Flows
Reports the amount of cash collected and paid out by a company in operating, investing and financing activities for a period of time.
How did the company receive cash?
How did the company use its cash?
Complementary to the income statement.
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Statement of Cash Flows
Cash inflows
Sell goods or services
Sell other assets or by borrowing
Receive cash from investments by owners
Cash outflows
Pay operating expenses
Expand operations, repay loans
Pay owners a return on investment
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Match Classification of Cash Flows
Operating activities – Transactions and events that enter into the determination of net income.
Investing activities – Transactions and events that involve the purchase and sale of securities, property, plant, equipment, and other assets not generally held for resale, and the making and collecting of loans.
Financing activities – Transactions and events whereby resources and obtained from, or repaid to, owners and creditors.
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Operating Activities
Cash Inflow
Sale of goods or services
Sale of investments in trading securities
Interest revenue
Dividend revenue
Cash Outflow
Inventory payments
Interest payments
Wages
Utilities, rent
Taxes
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Investing Activities
Cash Inflow
Sale of plant assets
Sale of securities, other than trading securities
Collection of principal on loans
Cash Outflow
Purchase of plant assets
Purchase of securities, other than trading securities
Making of loans to other entities
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Financing Activities
Cash Inflow
Issuance of own stock
Borrowing
Cash Outflow
Dividend payments
Repaying principal on borrowing
Treasury stock purchase
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CASH OUTFLOWS
Operating
Activities
Financing
Activities
Investing
Activities
CASH INFLOWS
Financing
Activities
Operating
Activities
Investing
Activities
Statement of Cash Flows
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Statement of Stockholder’s Equity
Beginning retained earnings
+ Net income
– Dividends paid
= Ending retained earnings
An additional financial statement that identifies changes in a firm’s equity from one accounting period to the next.
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