Here is a quick summary of the three financial statements: Balance Sheet, Income Statement, and Cash Flow Statement. It also talks about the reason for the Cash Flow Statement based on the effects of Accrual Accounting. There is some on Financial Statement Analysis and the SEC. It also goes over who uses financial statements both inside and outside of a company.

1. Financial Statements and Reporting
The End Product of Accounting

3. Financial Statements
• Income Statement
• Balance Sheet
• Cash Flow Statement

4. Who looks at them?
• Internal & External (to
the Company)
• Management
• Competitors
– benchmarking
• Investors
• Bankers

5. Management
• Internal information
• How are we doing?
• Performance
• Metrics/Dashboards
• Many divisional and
department Managers
have “P&L” responsibility
• P&L means Profit and
Loss
• They have to make money
for the company

6. Investors
• Invest in Companies
with strong financial
performance so their
money can grow.
• Compare across
companies and industry
sectors using new
EDGAR tools

7. Bankers
• Credit Analysis: the
likelihood of repaying a
loan and what collateral
is available
• Solvency
• Liquidity
• Debt Coverage Ratios
• Financial Statement
Analysis

8. Balance Sheet
A = L + E
Assets
• Cash
• Account Receivable
• Tangible:
– Inventory
– Equipment
– Furniture
– Computers
– Buildings & Land
• Intangible
– Patents &
– Intellectual Property (like
copyrights and trademarks)
– Brand
Liabilities and Equity
• Accounts Payable
• Short term debt
• Long term debt
• Equity
– Retained Earnings

9. Balance Sheet
think of it like home ownership
Assets Liabilities and Equity
Homeowner’s Equity
Valuation by Appraisal

10. Income Statement
• Revenue
• - Expenses
• = Net Income (also
called Profit or
Earnings)

11. Accrual Accounting
• Under the accrual basis of accounting, expenses are
matched with the related revenues and/or are
reported when the expense occurs, not when the cash
is paid.
• The result of accrual accounting is an Income
Statement that better measures the profitability of a
company during a specific time period.
• Non cash revenues like Accounts Receivable and non
cash expenses like Accounts Payable mean that the
Income Statement, while more accurately measuring
profitablity, no longer measures the cash position.
• The Cash Flow Statement is needed to reconcile Cash.

12. Cash Flow Statement
• The Cash Flow Statement is necessary because
of the non-cash accounts created by Accrual
Accounting.
• The Cash Flow Statement reconciles between
the Income Statement and Balance Sheet for
Cash position.

13. Financial Statement Analysis
• Performance Ratios
• Assets to Liabilities
• Profits as % of Sales
• Quick ratio
– Current Assets/Current
Liabilities
• Net Income/Employee
• Sales/Square Foot
• Inventory Turnover
• Liquidity

14. Liquidity & Solvency
• Liquidity is cash on hand;
Solvency is ability to pay
debts
• How quickly you can turn an
asset into cash
• Cash is King
• On the balance sheet,
assets are ranked by
liquidity
• How much cash do you
have on hand
• What are the current
obligations? (Liabilities)

15. Reporting
• Prepare Financial
Statements and Notes
• Auditing/Rules
– CPAs Certified Public
Accounting
– GAAP Generally Accepted
Accounting Principals
– FASB Financial Accounting
Standards Board
• Regulatory/Government
– Securities and Exchange
Commission

16. Where to find Financial Statements
• Publicly traded
companies
• SEC.gov
• Websites of companies
• Investor Websites
• Analysts
– Buy side
– Sell side

17. 10K What's Inside
• Description
• History
• Competition
• MD&A Management
Discussion and Analysis
• Audited Financials
• Auditor Letter
• Notes
• Executive Compensation

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