FAU FIN 3403 Balance Sheets, Income Statements and Net Cash Flow - Financial Statements Annual Report the A report containing financial statements and

FAU FIN 3403 Balance Sheets, Income Statements and Net Cash Flow

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Financial Statements Annual Report - A report containing financial statements and management s summary of the current 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 quarter or year. 3. Statement of Retained Earnings - A statement showing how much of the firm s earnings were retained in the business rather than paid out as dividends. 4. Statement of Cash Flows - A statement of the firm s operating, investing and financing activities on cash flows over the quarter or year. The Balance Sheet - Assets firm has on left. Liabilities on the assets on right. The assets are listed in order of decreasing liquidity. The liabilities are listed in order of when they must be paid. Assets 1. Current Assets - Assets with a life of one year or less, i.e., can be liquid in 12 months or less. 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 usually done by issuing stock (equity) or debt (bonds), i.e., Liabilities . Liabilities 1. Current Liabilities - Liabilities to be paid within the year. e.g.: accounts payable, notes payable, accruals (wages, taxes, Social Security, 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 all assets were sold and liabilities paid off. By definition: Total Equity = Total Assets - Total Liabilities . Also called Net Worth Equity is of two types : Common Equity - Common stock issued by the company whose price and dividends change. Preferred Equity - A hybrid security like both stock and debt, i.e., the price changes but the dividend is fixed. 1
Therefore: Assets - Liabilities - Preferred Stock = Common Equity. Let s look at an example of Allied Food Inc.’s Balance Sheet & an Income Statement: Balance Sheet December 31, 2007 Assets Current Assets Cash & Mktble Securities Accounts Receivable Inventory Total Fixed Assets Net Plant & Equipment Total Assets 2007 $ 10 375 615 $ 1000 $ 1000 $ 2000 2006 $ 80 315 415 $ 810 $ 870 $ 1680 Liabilities & Stockholder s Equity Current Liabilities Accounts Payable Notes Payable Accruals Total Long-Term Bonds Total Debt Preferred Stock (400K shares) Common Stock (50 million shares) Retained Earnings Total Common Equity Total Liabilities & Equity 2007 $ 60 110 140 310 754 1064 40 130 766 896 2000 2006 $ 30 60 130 220 580 800 40 130 710 840 1680 2
Income Statement December 31, 2007 Net Sales Cost of Goods Sold Depreciation Total Operating Costs Earnings Before Interest & Tax (EBIT) Less Interest Earnings Before Tax (EBT) Taxes (40%) Net Income Before Preferred Preferred Dividends Net Income Available to Common Stockholders Common Dividends Additions to Retained Earnings Per Share Data Common Stock Price Earnings Per Share Dividends Per Share Book Value Per Share 2007 $ 3000 2616.2 + 100 - 2716.2 283.8 - 88 195.8 - 78.3 117.5 4.

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