[FDNBUSF] Unit 6: Financial Statement and Reports

Financial statements

Financial statements

written records that convey the business activities and the financial performance of a company.

Financial statements

audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes

Income Statement

shows a company’s profit and loss over a period of time

Income Statement

summarizes a firm’s financial transactions over an interval of time

Profit/Loss

determined by taking all revenues and subtracting all expenses from both operating and non-operating activities

Revenues

covered in the income statement; format may vary depending upon the local regulatory requirements, the diversified scope of the business and the associated operating activities

Expense

the cost for a business to continue operation and turn a profit

Balance Sheet

gives a statement of a business’s assets, liabilities and shareholders equity at a specific point in time

Balance Sheet

offer a snapshot of what your business owns and what it owes as well as the amount invested by its owners, reported on a single day

Balance Sheet

tells you a business’s worth at a given time, so you can better understand its financial position

Assets

breaks down what your business owns of value that can be converted into cash.

Balance Sheet

lists assets in order of liquidity

liquidity

how easily they can be converted to cash

Cash
Accounts Receivable
Prepaid Expenses
Inventory
Due from Affiliates

(5) Current Assets

Long-term assets

depreciated over time; typically listed with a total accumulated depreciation amount subtracted from them

Equipment
Leasehold Improvements
Buildings
Vehicles
Long-term Notes Receivable

(5) Long-term assets

Current Liabilities

always reported first and includes debt and other obligations that will become due in the current period

Current Liabilities

includes trade debt and short-term loans, but it can also include the portion of long-term loans that are due in the current period

Current Liabilities

always listed by due dates

Accounts Payable
Accrued Expenses
Unearned Revenue
Lines of Credit
Current Portion of Long-term Debt

(5) Current Liabilities

Long-term Liabilities

lists the obligations that will become due in more than one year

Long-term Liabilities

often grouped into one general listing, but can be listed in detail

Mortgage Payable
Notes Payable
Loans Payable

(3) Long-term Liabilities

Equity

changes depending on the type of entity

Owner’s capital

equity for sole proprietorships

Members’ capital

equity for partnerships

Common stock
Preferred stock
Retained earnings
Treasury stock

(4) Stockholders’ Equity

Par value of common stock + Paid in Capital + Retained Earnings

Stockholders’ Equity Formula

Cash Flow Statement

used by firms to explain changes in their cash balances over a period of time by identifying all of the sources and uses of cash for the period spanned by the statement

Source of cash

any activity that brings cash into the firm

Use of cash

any activity that causes cash to leave the firm

Cash flow statement

includes ONLY inflows and outflows of cash and cash equivalents

Cash flow statement

excludes transactions that do not directly affects cash receipts and payments

Cash flow statement

a cash basis report on three types of financial activities; operating, investing and financing activities

Cash flow statement

provides valuable information about company’s gross payments and receipts and allows insights into its future income needs

Cash flow statement

As an analytical tool, it is useful in determining the short-term viability of a company, particularly its ability to pay bills

Beginning Cash Balance + Cash Flow from Operating Activities + Cash Flow from Investing Activities + Cash Flow from Financing Activities = Ending Cash Balance

Cash flow statement Formula

Operating activities

represent the company’s core business

Operating activities

includes sales and expenses

Investing activities

include cash flows that arise out of the purchase and sale of long-term assets such as plant and equipment

Investing activities

includes purchases of physical assets, investments in securities, or the sale of securities or assets

Financing activities

represent changes in the firm’s use of debt and equity

Financing activities

includes issue of new shares, the repurchase of outstanding shares, and the payment of dividends

Financing activities

shows the net flows of cash that are used to fund the company

Financing activities

includes transactions involving debt, equity, and dividends

Cash flow statement

Without it, it may be difficult to have an accurate picture of a company’s performance