Session 2 Fundamentals of Financial Statements 2025_Qian

Session Overview

• Session 2 Title: Fundamentals of Financial Statements

• Instructor: Prof. Jingyi Qian

• University: University of Maryland, Robert H. Smith School of Business

Syllabus Update

• Action: Download updated version from Canvas.

• Changes:

  • Updated TAs’ office hours.

  • Added Friday discussions to the schedule (13 total).

Friday Discussions

• Absences:

  • Allowed up to 3 absences without affecting final grade.

  • No need to notify Prof. Qian or TAs for absences if under 3.

  • More than 3 absences results in 9% for the course.

Upcoming Assessments

Quiz Schedule

• Test Quiz:

  • Date: Next Tuesday

  • Purpose: Practice, no affect on final grade.

  • Requirement: Bring laptop.

• Quiz 1:

  • Date: Next Thursday

  • Coverage: Sessions 1-3, closed book, closed notes.

  • Format: 15 minutes total, 10 minutes time limit.

  • Access code provided in class; must attend to take.

  • Worth: 50 points, 3% of final grade (target score 40+).

  • Structure: 5 multiple-choice, 3 true/false, 1 calculation question.

  • Scores visible post-submission, questions not.

Absences Policy

• Excused Absences for Quiz 1:

  1. Email Prof. Qian for documentation approval.

  2. Approved emails forwarded to Austin for makeup scheduling.

• ADS Accommodation:

  • Schedule meeting with TA to discuss quiz and exam procedures.

Preparation Tips for Quiz 1

1. Review slides for Sessions 1-3.

2. Review Lecture Notes 1.

3. Read eBook:

   • Chapter 1 (p. 2-21)

   • Chapter 2 (p. 1-10)

4. Note-taking Tip: Read lecture notes before class.

Recap of Accounting Concepts

• Definition of Accounting:

  • Two branches: Financial Accounting, Managerial Accounting.

  • Outputs: Financial Statements.

  • Objective: Assist external users in decision-making.

• External Users of Financial Statements:

  • Investors, creditors, regulatory agencies, etc.

• GAAP:

  • Generally Accepted Accounting Principles.

• Regulatory Bodies:

  • SEC (Securities and Exchange Commission),

  • FASB (Financial Accounting Standards Board),

  • IASB (International Accounting Standards Board).

Agenda for Today's Session

• Key Topics:Fundamentals of Financial Statements:

  • Understanding Assets, Liabilities, Shareholders' Equity.

• Case Study:

  • Analyze Walmart’s Financial Statements:

    • Balance Sheet

    • Income Statement

    • Statement of Shareholder Equity

    • Statement of Cash Flows.

Business Activities

• Resource Acquisition:

  • Necessary to produce and sell products/services.

• Investing Activities:

  • Focus on assets that provide future benefits.

• Equity:

  • Represents owner's claim, no obligation to repay.

• Liabilities:

  • Future obligations to repay.

• Financing Activities:

  • Steps after acquiring assets to commence operations.

• Accounting Equation:

  • Assets = Liabilities + Equity.

Financial Performance Statements

• Income Statement:

  • Reports revenues and expenses to determine income (profits/earnings).

  • Formula: Income = Revenues - Expenses.

• Statement of Shareholders’ Equity:

  • Shows how income is used (e.g., dividends or retained earnings).

• Principal Financial Statements:

  • Snapshot of financial position (Balance Sheet) vs. performance over time (Income Statement, Cash Flows).

Key Financial Concepts

• Balance Sheet:

  • Reports major classes of assets, liabilities, and shareholders' equity at a point in time.

  • Mirrors Accounting Equation: Assets = Liabilities + Equity.

• Annual Reporting:

  • Focus on Item 8: Financial Statements & Supplementary Data from the Annual Report (10-K).

Analysis of Walmart

• Company Overview:

  • Founded by Sam Walton in 1962, went public in 1970.

  • CEO: Douglas McMillon, over 10,500 stores in 19 countries, annual revenue ~$643b.

  • Market Cap: ~$780b.

Walmart Financial Summary

• Sales Revenue Breakdown:

  • Walmart U.S.: 69%, International: 18%, Sam's Club: 13%.

Reporting Timeline

• Walmart's Reporting Dates:

  • Fiscal Year-End: January 31.

  • Filing deadlines for 10-Q forms (within 30-60 days post-quarter).

Balance Sheet Details

• Snapshot of Major Classes:

  • Total Assets = $252,399 million.

  • Total Liabilities = $162,050 million.

  • Shareholders' Equity = $90,349 million.

Conclusion

• Understanding Financial Statements:

  • Essential for assessing a company’s economic standing and making informed decisions.

• Practical Application:

  • Exercise examples to calculate liabilities and understand ownership percentages.