Financial Statements Jason O'Bryan 30 January 2007


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Financial Statements Jason O'Bryan 30 January 2007

  1. 1. Financial Statements Jason O’Bryan 30 January 2007
  2. 2. Financial Statements <ul><li>Financial statements are released quarterly (10-Q) and annually (10-K). </li></ul><ul><li>You can usually find them in the annual report available on the company website, or from Yahoo! Finance. </li></ul><ul><li>Financial reporting is required by the SEC. The rules are established by GAAP, Generally Accepted Accounting Principles. </li></ul>
  3. 3. Types of Statements <ul><li>Balance Sheet </li></ul><ul><ul><li>Totals a company’s assets and liabilities. </li></ul></ul><ul><li>Income Statement </li></ul><ul><ul><li>Reports on a company’s results of operations, shows profit or loss. </li></ul></ul><ul><li>Cash Flow </li></ul><ul><ul><li>Shows cash flows due to operating, investing, and financing activities. </li></ul></ul>
  4. 4. Balance Sheet <ul><li>Statement of the book value of a company. </li></ul><ul><li>Main parts: </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><li>Stockholders’ Equity </li></ul></ul><ul><li>Important Equation: </li></ul><ul><ul><li>Assets = Liabilities + Stockholders’ Equity </li></ul></ul>
  5. 5. Assets <ul><li>The most liquid assets are listed first. </li></ul><ul><li>Current Assets </li></ul><ul><ul><li>Assets expected to be converted to cash, sold, or consumed within 1 year or within the operating cycle. </li></ul></ul><ul><ul><li>Cash, Short-term investments, Receivables, Inventory, Prepaid expenses </li></ul></ul>
  6. 6. Assets <ul><li>Long-term Investments </li></ul><ul><ul><li>Investments in securities such as bonds, common stock, or long-term notes. </li></ul></ul><ul><ul><li>Investments in fixed assets that are not used in operations (e.g. land held for sale) </li></ul></ul><ul><ul><li>Investments in special funds (e.g. pension) </li></ul></ul><ul><ul><li>Investments in subsidiaries or affiliated companies. </li></ul></ul>
  7. 7. Assets <ul><li>Fixed Assets </li></ul><ul><ul><li>Tangible assets </li></ul></ul><ul><ul><li>PP&E (Property, Plant & Equipment) </li></ul></ul><ul><ul><li>Land, buildings, machinery, furniture, tools </li></ul></ul><ul><ul><li>Accumulated Depreciation </li></ul></ul>
  8. 8. Assets <ul><li>Intangible Assets </li></ul><ul><ul><li>Patents </li></ul></ul><ul><ul><li>Copyrights </li></ul></ul><ul><ul><li>Goodwill </li></ul></ul><ul><ul><li>Trademarks </li></ul></ul>
  9. 9. Liabilities <ul><li>Current Liabilities </li></ul><ul><ul><li>These are expected to be cleared within 1 year. </li></ul></ul><ul><ul><li>Wages, accounts, taxes, accounts payable </li></ul></ul><ul><li>Long-term Liabilities </li></ul><ul><ul><li>Long-term bonds, notes payable, leases, pension obligations, product warranties </li></ul></ul>
  10. 10. Shareholders’ Equity <ul><li>The stockholders’ interest in all assets after all liabilities are paid. </li></ul><ul><ul><li>Equals Assets minus Liabilities </li></ul></ul><ul><li>Equity increases when the book value of the business increases. </li></ul><ul><ul><li>Assets Increase </li></ul></ul><ul><ul><li>Liabilities Decrease </li></ul></ul><ul><ul><li>Profits are realized </li></ul></ul><ul><ul><li>New shares are issued </li></ul></ul>
  11. 12. Income Statement <ul><li>Shows the profit or loss over a period. </li></ul><ul><li>Has two main categories, revenues and expenses. </li></ul><ul><ul><li>Revenues total up everything that was earned. </li></ul></ul><ul><ul><li>Expenses total up everything that was spent. </li></ul></ul><ul><li>The difference is Net Income. </li></ul>
  12. 13. Income Statement <ul><li>Typically categorized in 3 main sections </li></ul><ul><ul><li>Operating </li></ul></ul><ul><ul><li>Non-operating </li></ul></ul><ul><ul><li>Irregular items </li></ul></ul>
  13. 14. Operating Section <ul><li>Calculates Operating Income </li></ul><ul><li>Revenue </li></ul><ul><ul><li>Inflows of assets, usually cash from sale of goods or services. </li></ul></ul><ul><li>Expenses </li></ul><ul><ul><li>COGS – amount products cost to produce </li></ul></ul><ul><ul><li>G&A – expenses to manage the business (officer salaries, legal fees, utilities, supplies) </li></ul></ul><ul><ul><li>Selling – advertising, shipping, commission </li></ul></ul><ul><ul><li>Research & Development </li></ul></ul>
  14. 15. Income Statement <ul><li>Non-operating section </li></ul><ul><ul><li>Interest expensed and interest earned </li></ul></ul><ul><ul><li>Income tax </li></ul></ul><ul><ul><li>Any revenues or expenses not related to the primary business operations. </li></ul></ul><ul><li>Irregular items </li></ul><ul><ul><li>Discontinued operations </li></ul></ul><ul><ul><li>Extraordinary items (e.g. natural disasters) </li></ul></ul>
  15. 16. Income Statement <ul><li>Net Income = Operating Income – Additional expenses </li></ul><ul><li>EBIT – Earnings before interest & taxes </li></ul><ul><ul><li>A measure of earning power from operations </li></ul></ul><ul><ul><li>Amount of cash available to pay off creditors </li></ul></ul><ul><li>EBITDA – depreciation & amortization </li></ul><ul><ul><li>Good for looking at companies with large amounts of fixed assets (which are subject to heavy depreciation charges) </li></ul></ul>
  16. 18. Cash Flow Statement <ul><li>Shows incoming and outgoing money during a particular period. </li></ul><ul><li>Broken down into 3 categories </li></ul><ul><ul><li>Operating activities </li></ul></ul><ul><ul><li>Investing activities </li></ul></ul><ul><ul><li>Financing activities </li></ul></ul>
  17. 19. Operating Activities <ul><li>Production, sales, and delivery of the company’s product as well as collecting payment from its customers. </li></ul><ul><ul><li>Net Income from income statement </li></ul></ul><ul><ul><li>Depreciation </li></ul></ul><ul><ul><li>Working Capital </li></ul></ul><ul><ul><li>Deferred Tax </li></ul></ul>
  18. 20. Investing Activities <ul><li>Purchase or sale of long-term assets. </li></ul><ul><ul><li>Buying new land </li></ul></ul><ul><ul><li>Building a new factory </li></ul></ul><ul><ul><li>Purchasing machinery </li></ul></ul>
  19. 21. Financing Activities <ul><li>Cash flow from investors, such as banks and shareholders </li></ul><ul><ul><li>Dividends paid </li></ul></ul><ul><ul><li>Sale or purchase of stock </li></ul></ul><ul><ul><li>Bank loans, notes </li></ul></ul>
  20. 23. Questions?