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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.

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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