Cynthia C. CutrightColorado Technical UniversityFINC615-1001A-01Ray T. Kest, CPA, Ph.DJanuary 12, 2010
The following presentation will explain how financial statements are developed. The four primary financial statements covered are balance sheets, income statements, cash flow statements, and statements of shareholder equity. Also explained is how data is collected, what financial statements measure, and links among financial statements. Competitor financials are given as well as a basic financial introduction to the furniture industry.
Balance SheetStatement of Financial PositionIncome StatementsRevenues Minus ExpensesCash Flow StatementsSummarizes Sources and Uses of CashStatement of Shareholder EquityStatement of Retained Earnings(The Four Financial Statements, 2007)
Balance sheets show an overview of the total amount of money the company owes in the form of assets to liabilities and shareholder equity as well as what it owes at any fixed point in time. As the name implies there is a balance between the assets and liabilities which adheres to the formula: Assets = Liabilities + Shareholder Equity. (Garrison, Noreen, & Brewer, 2008)Assets are things of value that the company owns that can be sold. They consist of physical property, trademarks, patents, cash, and investments. Assets are categorized on the balance sheet as current assets, non-current assets, and fixed assets. Current assets are items the company can expect to turn into cash within a years’ time while non-current assets are the items the company does not expect to turn into cash within a year. Fixed assets are the assets the company uses to run the business.Liabilities are monies that the company owes for loans, rent, supplies, payroll, and taxes. They are categorized as either current liabilities or long-term liabilities. Similar to assets, current liabilities are expected to be paid off within a year whereas long-term liabilities will take longer than a year to pay off.
Income statements show how much money the company brought in through sales revenue and the amount it spent on expenses and deductions, for a given period of time. The time period covered by income statements is one calendar year, or one fiscal year. The bottom line or end result of the income statement reveals net profits / net income or net losses. EEC provides income statements to management on a monthly basis and to stockholders following the end of each quarter.When preparing or reading an income statement the first entry is the total sales revenue. From this amount deduct the cost of goods sold to find the gross profit. From the gross profit the total operating expenses are deducted to arrive at the operating profit. Operating expenses consist of selling expenses, rent or lease, payroll, and depreciation. Next interest expenses are deducted from the operating profit to find the net profits before taxes. Lastly, after deducting the taxes the company will now have figures for net profits / net income or net losses. The formulas are as follows.Total Sales Revenue - Cost of Goods Sold = Gross ProfitGross Profit – Total Operating Expenses = Operating ProfitOperating Profit - Interest Expense = Net Profit before TaxesNet Profit before Taxes – Taxes = Net Profits / Net Income or Net Losses
Statements of cash flow show the company’s exchange of money, inflow and outflow, with outside entities for a given period of time. By using the information gathered on the balance sheet and income statement EEC will know if enough cash is available to pay expenses and purchase new assets. The statement of cash flow is comprised of “three main categories: (1) operating activities; (2) investing activities; and (3) financing activities” (Beginners’ guide to financial statements., 2010).Operating activities are directly related to the sale and production of products and services. Listed on the statement of cash flow under the operating activities are net profits, depreciation, a decrease in accounts receivables, a decrease in inventories, an increase in accounts payables, and a decrease in accruals. These total the amount of cash provided by operating activities.Investing activities are associated with the purchase and sale of fixed assets. The cash flow listings for investing activities include an increase in gross fixed assets and changes in business interest. These total the amount of cash provided by investing activities.Financing activities are transactions related to debt and equity financing. The cash flow for financing activities are a decrease in notes payable, an increase in long term debts, changes in stockholder equity, and dividends paid. (Gitman, 2006, p. 112)
Shareholder equity is the amount of money left after a company sells all of its assets and pays off all of its liabilities. This equity is found on the balance sheet just before the bottom line of total liabilities. Shareholder equity is the amount of the stockholders investment plus or minus the company earnings and losses. EEC provides this information to stockholders at the end of each quarter.
Ethan Allen Interiors Inc.Key stats and ratiosBassett Furniture Industries Inc.Key stats and ratios
FINANCIAL STATEMENTS<br />Cynthia C. Cutright<br />Colorado Technical University<br />FINC615-1001A-01<br />Ray T. Kest, CPA, Ph.D<br />January 12, 2010<br />
INTRODUCTION<br />Primary Financial Statements<br />Balance Sheets<br />Income Statements<br />Cash Flow Statements<br />Statement of Shareholder Equity<br />How Data is Collected<br />What Financial Statements Measure<br />Links Among Financial Statements<br />Competitor Financials<br />Financial Introduction to Furniture Industry<br />
FINANCIAL STATEMENTS<br />Balance Sheet<br />Statement of Financial Position<br />Income Statements<br />Revenues Minus Expenses<br />Cash Flow Statements<br />Summarizes Sources and Uses of Cash<br />Statement of Shareholder Equity<br />Statement of Retained Earnings<br />(The Four Financial Statements, 2007)<br />
BALANCE SHEETS<br />Overview of total amount of money owed<br />Assets = Liabilities + Shareholder Equity<br />Assets are items of value that can be sold<br />Physical property, Trademarks, Patents, Cash, and Investments<br />Categorized as current assets, non-current assets, and fixed assets.<br />Liabilities are monies owed<br />Loans, Rent, Supplies, Payroll, and Taxes.<br />
INCOME STATEMENTS<br />Shows the money received and paid for a set period<br />Sales revenue, Expense, Deductions<br />Total Sales Revenue - Cost of Goods Sold = Gross Profit<br />Gross Profit – Total Operating Expenses = Operating Profit<br />Operating Profit - Interest Expense = Net Profit before Taxes<br />Net Profit before Taxes – Taxes = Net Profits / Net Income or Net Losses<br />
CASH FLOW STATEMENTS<br />Shows exchange of money, inflow, and outflow for a set period<br />Comprised of three categories<br />Operating activities<br />Investing activities<br />Financing activities<br />
SHAREHOLDER EQUITY<br />Shareholder equity is the amount left after assets are sold and liabilities are paid off.<br />Shareholder Equity = Assets - Liabilities<br />
Ethan Allen Interiors Inc.<br />Key stats and ratios<br />Bassett Furniture Industries Inc.<br />Key stats and ratios<br />COMPETITOR FINANCIALS<br />
Key stats and ratios<br />Q3 (Sep '09) 2009<br />Net profit margin -9.97% -7.81%<br />Operating margin -11.81% -10.79%<br />EBITD margin - -6.99%<br />Return on average assets -8.48% -7.47%<br />Return on average equity -18.22% -15.46%<br />Employees 4,300 -<br />(Summary: Ethan Allen Interiors Inc., 2010)<br />ETHAN ALLEN INTERIORS INC.<br />
ETHAN ALLEN INTERIORS INC.<br />Annual Income Statement<br />Annual Income Statement<br />Cash Flow<br />Balance Sheet<br />(Financials: Ethan Allen Interiors Inc., 2010)<br />
Key stats and ratios<br />Q3 (Sep '09) 2009<br />Net profit margin -5.98% -14.00%<br />Operating margin -5.18% -6.85%<br />EBITD margin - -4.78%<br />Return on average assets -6.26% -14.55%<br />Return on average equity -12.73% -24.83%<br />Employees 1,329 -<br />(Summary: Bassett Furniture Industries Inc., 2010)<br />BASSETT FURNITURE INDUSTRIES<br />
REFERENCES<br />The Four Financial Statements. (2007). Retrieved January 10, 2010, from Quick MBA: http://www.quickmba.com/accounting/fin/statements/<br />Beginners’ guide to financial statements. (2010). Retrieved January 10, 2010, from SEC: http://www.sec.gov/investor/pubs/begfinstmtguide.htm<br />Financials: Bassett Furniture Industries Inc. (2010). Retrieved Janurary 11, 2010, from Google Finance: http://www.google.com/finance?q=NASDAQ:BSET&fstype=ii<br />Financials: Ethan Allen Interiors Inc. (2010). Retrieved January 11, 2010, from Google Finance: http://www.google.com/finance?q=NYSE:ETH&fstype=ii<br />
REFERENCES<br />Summary: Bassett Furniture Industries Inc. (2010). Retrieved January 11, 2010, from Google Finance: http://www.google.com/finance?q=NASDAQ:BSET<br />Summary: Ethan Allen Interiors Inc. (2010). Retrieved January 11, 2010, from Google Finance: http://www.google.com/finance?q=NYSE:ETH<br />Garrison, R. N. (2008). Managerial Accounting (12th ed.). NJ: McGraw Hill.<br />Gitman, L. J. (2006). Principles of Managerial Finance (11th ed.). Boston, MA: Pearson.<br />Home Furniture Industry Financials. (n.d.). Retrieved January 12, 2010, from Hoovers: http://industries.hoovers.com/consumer-products-manufacturers/home-furniture/industry_financials<br />