Financial StatementsAnnual Report-A report containing financial statements and management’s summary ofthecurrent status of the firm and its future prospects.The financial statements are:1.Balance Sheet- A statement of the firm’s accounting value at a specific point in time.2.Income Statement- A statement of the firm’s revenues and expenses over the quarteroryear.3.Statement of Retained Earnings- A statement showing how much of the firm’searningswere retained in the business rather than paid out as dividends.4.Statement of Cash Flows- A statement of the firm’s operating, investing andfinancingactivities on cash flows over the quarter or year.The Balance Sheet-Assets firm has on left.Liabilities on the assets on right.The assetsare listed in order of decreasing liquidity.The liabilitiesare listed in order of when they must be paid.Assets1.Current Assets- Assets with a life of one year or less, i.e., can be liquid in 12 monthsorless.e.g.:cash, short-term securities, accounts receivable, inventory.2.Fixed Assets- Assets with a long life.a.Tangible - Buildings, machines, etc.b.Intangible - Patents, trademarks, R & D, brand loyalty, etc.But to get these assets the firm had to buy them usually w/ financing.This is usuallydoneby issuing stock (equity) or debt (bonds), i.e., Liabilities.Liabilities1.Current Liabilities- Liabilities to be paid within the year.e.g.:accounts payable, notes payable, accruals (wages, taxes,SocialSecurity, workers’ comp)2.Long-term Liabilities- Debt not repaid in a year.e.g.:Bonds, loans, deferred taxes, etc.Stockholder Equity- Residual claim on the firm’s assets, i.e., what is left over if allassetswere sold and liabilities paid off.By definition: Total Equity = Total Assets - Total Liabilities.Also called Net WorthEquity is of two types:Common Equity- Common stock issued by the company whose price and dividendschange.Preferred Equity- A hybrid security like both stock and debt, i.e., theprice changes butthe dividend is fixed.1
Therefore:Assets - Liabilities - Preferred Stock = Common Equity.Let’s look at an example ofAllied Food Inc.’sBalance Sheet & an Income Statement:Balance SheetDecember 31, 2007AssetsCurrent AssetsCash & Mktble SecuritiesAccounts ReceivableInventoryTotalFixed AssetsNet Plant & EquipmentTotal Assets2007$10375615$1000$1000$20002006$80315415$810$870$1680Liabilities & Stockholder’s EquityCurrent LiabilitiesAccounts PayableNotes PayableAccrualsTotalLong-Term BondsTotal DebtPreferred Stock(400K shares)Common Stock(50 million shares)Retained EarningsTotal Common EquityTotal Liabilities & Equity2007$6011014031075410644013076689620002006$30601302205808004013071084016802
Income StatementDecember 31, 2007Net SalesCost of Goods SoldDepreciationTotal Operating CostsEarnings Before Interest &Tax (EBIT)Less InterestEarningsBeforeTax(EBT)Taxes (40%)Net Income BeforePreferredPreferred DividendsNet Income Availableto CommonStockholdersCommon DividendsAdditions to RetainedEarningsPer Share DataCommon Stock PriceEarnings Per ShareDividends Per ShareBook Value Per Share2007$30002616.2+100- 2716.2283.8-88195.8-78.3117.54.
Want to read all 9 pages?
Previewing 4 of 9 pages Upload your study docs or become a member.
Want to read all 9 pages?
Previewing 4 of 9 pages Upload your study docs or become a member.
End of preview
Want to read all 9 pages? Upload your study docs or become a member.