Chapter 2 & 3. Accounting value - POSTED

Chapter 2 & 3. Accounting value - POSTED -...

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Unformatted text preview: Accounting Value Chapter 2 & 3 Finance 357 Balance Sheet Balance Sheet – Snapshot of accounting value on a specific date Assets on left side Liabilities and Stockholder’s equity on right side Assets = Liabilities + Stockholder’s Equity Balance Sheet – Financial Concerns Accounting Liquidity – quickness with which assets can be converted to cash Current Assets are the most liquid (Cash, short- term notes) Accounts Receivable is next with payments forthcoming and ability to factor them Inventory is more difficult to convert to cash as it must be sold first Fixed Assets are most difficult to convert to cash as they usually aren’t meant to be resold Balance Sheet – Financial Concerns Debt versus Equity Debt requires fixed payments of interest and principle over time. First claim in bankruptcy Equity only has a residual claim on firm assets and does not require any ongoing payments. Behind debt holders in bankruptcy Value versus Cost Generally, GAAP requires that financial statements carry assets at cost Can be very misleading because market values of assets often vary from their original cost In Finance, Value implies market value not cost Income Statement Income Statement – measures performance over specific time period Important Income Statement Values Operating Income Earnings before interest and taxes (EBIT) Earnings per share (EPS) Whole Foods Income Statement for Three Months Ended May 4, 2008 April 29, 2007 NET SALES $ 17,907 $ 18,545 Cost of Sales 11,835 12,282 GROSS PROFIT 6,072 6,263 Operating Expenses: Selling, General and Administrative 4,900 4,186 Depreciation and Amortization 444 405 Total Operating Expenses 5,344 4,591 OPERATING INCOME 728 1,672 Interest (Income) Expense: Interest and Investment Income (3) (11 ) Interest Expense 167 171 Interest, net 164 160 EARNINGS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES 564 1,512 Provision for Income Taxes 208 565 EARNINGS FROM CONTINUING OPERATIONS 356 947 EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX — 99 NET EARNINGS $ 356 $ 1,046 Weighted Average Common Shares 1,679 1,959 BASIC EARNINGS PER SHARE FROM CONTINUING OPERATIONS $ 0.21 $ 0.48 BASIC EARNINGS PER SHARE FROM DISCONTINUED OPERATIONS $ — $ 0.05 BASIC EARNINGS PER SHARE $ 0.21 $ 0.53 Income Statement – Key Facts Important points to remember Income is reported when it is earned, not when it is collected Non-cash items are included in the income statement Depreciation Deferred Taxes Footnotes to income statement may provide important details not explicitly explained in the statement itself Corporate Tax Rates...
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This note was uploaded on 11/09/2010 for the course FIN 357 taught by Professor Hadaway during the Spring '06 term at University of Texas.

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Chapter 2 & 3. Accounting value - POSTED -...

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