A financial statement is a quantitative way of showing a company's financial performance and position. It includes 4 main statements: the income statement shows revenues, expenses and profits; the statement of retained earnings shows changes in retained profits; the balance sheet shows assets, liabilities and equity at a point in time; and the statement of cash flows shows cash inflows and outflows from operating, investing and financing activities.

8. ABC, Inc. Income Statement Years Ended December 31, 2008 and 2007 2008 2007 Net Sales $ 3000.0 $2850.0 Operating costs excluding depreciation and amortization 2616.2 2497.0 Earnings before interest, taxes, depreciation, and amortization (EBITDA) $ 383.8 $353.0 Depreciation $ 100.0 $90.0 Amortization 0.0 0.0 Depreciation and Amortization $100.0 $90.0 Earnings before interest and taxes (EBIT or operating income) $283.8 $263.0 Less Interest 88.0 60.0 Earnings before taxes (EBT) $195.8 $203.0 Taxes (40%) 78.3 81.2.0 Net Income $117.5 $121.8.0

10. ABC, Inc. Statement of Retained Earnings Years Ended December 31, 2008 Balance of Retained earnings, Dec 31, 2007 $ 710.0 Add: Net Income, 2008 113.5 Less: Dividends (57.5) Balance of Retained earnings, Dec 31, 2008 $766.0

13. ABC, Inc. Balance Statement Years Ended December 31, 2008 and 2007 Assets 2008 2007 Cash and equivalents $10 $15 Short-term investments 0 65 Accounts Receivable 375 315 Inventories 615 415 Total current Assets $1000 $810 Net plant and equipment 1000 870 Total assets $2000 $1680 Liabilities and Equity 2008 2007 Accounts Payable $60 $30 Notes Payable 110 60 Accruals 140 130 Total current Liabilities $310 $220 Long-term bonds 754 580 Total Liabilities $1064 $800 Stock 170 170 Retained earnings 766 710 Total common equity $896 $840 Total liabilities and equity $2000 $1680

15. The three basic activities of businesses and the financial flows of the statement of cash flows: Operating revenues Operating costs Sale of assets Purchase of assets Operating activities Investing activities Financing activities Equity, debt Dividends, debt payments Financial boundaries of the company (Cash flows only) (Cash flows only) (Cash flows only) (Cash flows only) (Cash flows only) (Cash flows only)

16. ABC, Inc. Balance Statement Years Ended December 31, 2008 and 2007 Operating Activities Net Income $117.5 Depreciation 100.0 Increase in Account receivable (60.0) Increase in Inventories (200.0) Increase in Account Payable 30.0 Increase in Accruals 10.0 Net Cash provided by Operating Activities $ (2.5) Investing Activities Cash used to acquire fixed assets $ (230.0) Sale of short-term investment 65.0 Net Cash provided by Investing Activities $ (165.0) Financing Activities Increase in Notes Payable $50.0 Increase in Bonds Outstanding 174.0 Payment of dividends (61.5) Net Cash provided by Financing Activities $ 162.5

17. Balance Sheet–12/31/07 Assets Cash Other current assets Long-term investments Long-lived assets Intangible assets Liabilities and Stockholders’ Equity Current liabilities Long-term liabilities Contributed capital Retained earnings Balance Sheet–12/31/08 Assets Cash Other current assets Long-term investments Long-lived assets Intangible assets Liabilities and Stockholders’ Equity Current liabilities Long-term liabilities Contributed capital Retained earnings Statement of Cash Flows–1/1/08–12/31/08 Net cash flow from operating activities Net cash used by investing activities Net cash provided by financing activities Change in cash balance Beginning cash balance (12/31/7) Ending cash balance (12/31/08) Income Statement–1/1/08–12/31/08 Revenues − Expenses = Net income Statement of Retained Earnings 1/1/08–12/31/08 Beginning retained earnings balance + Net income − Dividends Ending retained earnings balance