The document outlines key concepts for understanding financial statements, including income statements, balance sheets, and cash flow analysis. It emphasizes the calculation of various financial metrics such as gross profit, operating profit, and earnings per share, along with analysis techniques like common size analysis and ratio analysis to evaluate company performance. The seminar encourages identifying trends and significant changes in financial metrics to better understand a company's financial health.

1. Unlocking Financial Statements Online Seminar Day 5 July 23, 2010

2. Beyond the Basics Understanding Financial Statements

3. 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 Understanding Financial Statements

4. Other Income/Expenses Discontinued items Unusual/extraordinary items Changes in accounting principle Impairment charge Sale of investment Minority interest Understanding Financial Statements

5. 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 ncome taxes Net income Understanding Financial Statements

6. Earnings Per Share Basic earnings per share (Bloomberg) Diluted earnings per share (Wall Street Journal, fully diluted) Understanding Financial Statements

7. Balance Sheet It balances Assets = Liabilities + Shareholders’ Equity Understanding Financial Statements

8. Cash Flows From operations From investing From financing Understanding Financial Statements

9. 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 Understanding Financial Statements

10. 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 Understanding Financial Statements

11. 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. Understanding Financial Statements

12. 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 Common Size Understanding Financial Statements

13. 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) Understanding Financial Statements

14. 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 Understanding Financial Statements

15. 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 Understanding Financial Statements

16. Ratio Analysis Takes your analysis to yet another level Finance types especially fond of ratios Understanding Financial Statements

17. 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 Understanding Financial Statements