ORIE 3150 class 2 - ORIE 3150 September 1 2009 Outline for Chapter 2 Note Tuesdays section will begin at 2:45 PM I Balance Sheet a detailed look a

ORIE 3150 September 1, 2009 Outline for Chapter 2 Note: Tuesday’s section will begin at 2:45 PM I. Balance Sheet – a detailed look a. Assets - closest to cash listed first b. Current assets c. Long term assets d. Prepaid expenses are assets. Common examples:____________ and ______________ e. Difference between assets and expenses f. Liabilities are also broken into current and long term categories g. Unearned revenue is a liability. Common example:___________________ h. Retained earnings can be a positive or negative number. II. Earnings per share A profitability ratio that measures the net income earned on each share of common stock. It is computed by dividing net income by the average number of common shares outstanding during the year. The average is computed on the basis of time, so you have to know how many shares the corporation had, and for how long. By comparing earnings per share of a single company over time, one can evaluate its relative earnings performance on a per share basis. It is like normalized earnings. A company can have either earnings per share or loss per share, of course. Or, it can break even exactly and have zero earnings and zero earnings per share. III. Retained Earnings We add net income to and subtract dividends from the beginning balance of retained earnings to arrive at the ending balance of retained earnings. Beginning Retained Earnings + Net Income Dividends ̶ Ending Retained Earnings Obviously if all earnings are paid out as dividends, then the Retained Earnings account does not grow. It is very possible to pay dividends when the company is operating at a loss. This will further reduce the balance in Retained Earnings, of course.