AFM 101 Midterm Exam Aid Package

AFM 101 Midterm Exam Aid Package - AFM101MidtermExamAid...

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AFM 101 Midterm Exam Aid Chapter 1: Financial Statements and Business Decisions Four Major Financial Statements (FS) 1) The Balance Sheet The company’s financial position at a point in time ABC Co. Balance Sheet December 31, 2009 Assets (list all assets) $XX Total Assets XX Liabilities (list all liabilities) $XX Owner’s Equity/Shareholder’s Equity (list owner’s equity components) XX Total Liabilities and Owner’s Equity XX Assets Economic resources of the company, i.e. what the company owns Liabilities The company’s obligations, i.e. what the company owes Owner’s Equity/Shareholder’s Equity Two parts: o The amount of financing provided by the owners of the company through share capital o The earnings from the business operations from retained earnings 2) Income Statement How the company operated during the accounting period ABC Co. Income Statement For the Period Ended December 31, 2009 Revenue (list all sources of revenue) $XX Total Revenue X X Expenses (list all Expenses) $XX T o t a l E x p e n s e s X X N e t I n c o m e X X Revenue Money received from sale of goods, or providing a service Expenses Resources used up by the entity to run the business
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AFM 101 Midterm Exam Aid 3) Statement of Retained Earnings (Statement of Shareholders’ Equity) Used to calculate the ending retained earnings number for the balance sheet ABC Co. Statement of Retained Earnings For the Period Ended December 31, 2009 Beginning Retained Earnings $XX Add Net Income for period XX Subtract Dividends paid to owners XX Ending Retained Earnings XX When net income is earned every year, the company can choose to: o Distribute all (or a portion) to shareholders in the form of dividends o Retain all (or a portion) to continue to run the day to day business Retained Earnings: the accumulation of all net income NOT distributed as dividends since the first year of business 4) Statement of Cash Flows Used to show all inflows and outflows of company cash during the year Used to calculate the cash balance on the balance sheet ABC Co. Statement of Cash Flow For the Period Ended December 31, 2009 Cash flows from Operating Activities (list details) $XX Cash flows from Investing Activities (list details) $XX Cash flows from Financing Activities (list details) $XX Net Increase/Decrease in Cash XX Cash balance (Jan 1, 2009) XX Cash Balance (Dec 31, 2009) XX 5) Notes to the Financial Statements Required by accounting standards (GAAP) Further explain the numbers in the financial statements Explain accounting policies used by the management of the company Contain supporting schedules and calculations Additional important non quantitative disclosures Ratio Analysis Price/Earnings Ratio = Market Price / Net Income Represents the “value” an investor thinks this company is worth Investors will multiply the P/E ratio by the company’s net income to determine a price one would pay for the company The higher the P/E ratio, the greater confidence investors have in this company’s abilities to generate income
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AFM 101 Midterm Exam Aid Package - AFM101MidtermExamAid...

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