Jimmy Gentry presents Day Five of "Unlocking Financial Statements," a free, weeklong webinar series hosted by the Donald W. Reynolds National Center for Business Journalism. This training covers income statements, balance sheets, cash flows and tips for finding stories in corporate filings. For more information about free training for business journalists, please visit businessjournalism.org.

1. Unlocking
Financial Statements
Day 5

2. Schedule for Week
 Day 1: Introduction to financial
statements
 Day 2: Income statement
 Day 3: Balance sheet
 Day 4: Cash flows
 Day 5: Beyond the basics
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3. Beyond the Basics
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4. Income Statement
 Sales or revenues
 Cost of goods sold
 Gross profit
 Sales, general and administrative
 Operating profit
 Other income/expenses
 Interest
 Income taxes
 Net income or profit
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5. Other Income/Expenses
 Discontinued items
 Unusual/extraordinary items
 Changes in accounting principle
 Impairment charge
 Sale of investment
 Minority interest
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6. Thinking Inside the Box
 Revenues
 Minus cost of goods sold
 Equals gross profit
 Minus operating expenses
 Equals operating profit
 Minus or plus other expenses/income
 Minus or plus interest expenses/income
 Minus income taxes
 Net income
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7. Earnings Per Share
 Basic earnings per share
(Bloomberg)
 Diluted earnings per share (Wall
Street Journal, fully diluted)
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8. Balance Sheet
 It balances
 Assets = Liabilities + Shareholders’
Equity
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9. Cash Flows
 From operations
 From investing
 From financing
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10. Free Cash Flow
 Several ways to calculate it
 Companies create their own models
 Gross way to do it:
 Cash from operating activities
 Minus capital expenditures
 Equals free cash flow
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11. A Basic Look at the Numbers
 Look at changes in amounts year to year, especially
revenues and expenses
 Look at numbers that are significantly larger or
smaller than the previous period
 Look at the trend line for sales/revenues, operating
income and net income. Calculate percentage
change for each.
 Look at the trend for cash flow
 Look at the trend for free cash flow
 Tie the numbers to the footnotes
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12. The Next Step
 Calculate percentage change year-to-
year or over several years …
 Especially for large numbers that are
significantly larger or smaller than the
previous period …
 Especially for sales/revenues, operating
income, net income, cash and free
cash.
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13. Common Size
 Identify trends
 Identify what causes changes in totals on
financial statements
 Easier to compare percentages than raw
numbers
 Easier to compare companies
 Easier to compare companies with industry
averages
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14. Common Size Analysis
 For Income Statement, divide all entries
by revenue
 For Cash Flows, divide all entries by the
total increase or decrease of cash
inflows for the year (add cash from
operating, investing and financing)
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15. Comparable Statements
 Often have to restructure Income
Statement to the in-the-box format we
discussed
 Typical problems come from items we
would consider Other Income/Expenses
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16. Trends in Margins
 How have Cost of Goods Sold and
Sales, General and Administrative
changed?
 What does that mean for Gross Margins
and Operating Margins?
 Value of using Basis Points
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17. Ratio Analysis
 Takes your analysis to yet another level
 Finance types especially fond of ratios
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18. Common Size, Ratios
 These techniques let you drill below the
surface and start developing a more
complete picture of the company’s
performance
 Strengths
 Weaknesses
 Strategic effectiveness
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19. Presented by:
 James K. Gentry, Ph.D.
 Clyde M. Reed Teaching Professor
 School of Journalism and Mass Communications
 University of Kansas
 jgentry@ku.edu
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