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Financial statements II by Jimmy Gentry

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Jimmy Gentry presents "Financial Statements II" during the annual 2012 Reynolds Business Journalism Seminars, hosted by the Donald W. Reynolds National Center for Business Journalism.

For more information about free training for business journalists, please visit businessjournalism.org.

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Financial statements II by Jimmy Gentry

  1. 1. Accounting II: Tools for Analysis <ul><ul><ul><ul><ul><li>Strictly Financials </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Jan. 3, 2012 </li></ul></ul></ul></ul></ul>
  2. 2. <ul><li>Donald W. Reynolds National Center </li></ul><ul><li>For Business Journalism </li></ul><ul><li>At Arizona State University </li></ul>Strictly Financials
  3. 3. <ul><li>James K. Gentry, Ph.D. </li></ul><ul><li>Clyde M. Reed Teaching Professor </li></ul><ul><li>School of Journalism and Mass Communications </li></ul><ul><li>University of Kansas </li></ul><ul><li>[email_address] </li></ul>Strictly Financials
  4. 4. Common Size Analysis <ul><li>A technique that turns all financial statement entries into percentage of revenue </li></ul><ul><li>Then can look at percentage change and percentage point change </li></ul>Strictly Financials
  5. 5. Why Common Size <ul><li>Identify trends </li></ul><ul><li>Identify what causes changes in totals on financial statements </li></ul><ul><li>Easier to compare percentages than raw numbers </li></ul><ul><li>Easier to compare companies </li></ul><ul><li>Easier to compare company with industry averages </li></ul>Strictly Financials
  6. 6. Doing Common Size <ul><li>For IS, divide Revenue into all entries. </li></ul><ul><li>For BS, divide each total category into its category items. For example, divide Total Assets into each category of assets. </li></ul><ul><li>For CF, divide each total category into its category items. </li></ul>Strictly Financials
  7. 7. Comparable Statements <ul><li>Often have to restructure Income Statement to the In-the-Box format we have studied </li></ul><ul><li>Typical problems come from items we would consider Other Income/Expenses </li></ul>Strictly Financials
  8. 8. Trends in Margins <ul><li>How have Cost of Goods Sold (CGS) and Sales, General and Administrative (SGA) changed? </li></ul><ul><li>What does that mean for Gross Profit Margin and Operating Profit Margin? </li></ul><ul><li>How does Net Profit Margin move? </li></ul><ul><li>Importance of using Basis Points </li></ul>Strictly Financials
  9. 9. Common Size, Ratios <ul><li>These techniques let you drill below the surface and start developing a more complete picture of the company’s performance </li></ul><ul><ul><li>Strengths </li></ul></ul><ul><ul><li>Weaknesses </li></ul></ul><ul><ul><li>Strategic effectiveness of the firm </li></ul></ul>Strictly Financials

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