Chapter 12 - Financial Analysis Guide

Chapter 12 - Financial Analysis Guide - FINANCIAL ANALYSIS...

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Prepared by Anna Rovira Beavers for Financial Accounting, Laney College November, 2008 Reproduction of this guide is prohibited without consent of the author. 1 FINANCIAL ANALYSIS Study Guide for Financial Accounting By Anna Rovira Beavers
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Prepared by Anna Rovira Beavers for Financial Accounting, Laney College November, 2008 Reproduction of this guide is prohibited without consent of the author. 2 Understanding Financial Statements I. The Balance Sheet The balance sheet is the financial statement that reports the company financial position at a specific time. The classified balance sheet breaks the three major accounts (assets, liabilities and stockholder’ equity) into smaller classifications to help decision makers better understand the information presented. Following are typical classifications and a brief description of each. Remember! ASSETS = LIABILITIES + STOCKHOLDER’S EQUITY ASSETS: Current Assets Economic resources that a company owns and is expected to be converted into cash, sold, or consumed within twelve months. Property, Plant and Equipment Summarizes the amounts for equipment, buildings, and land. These are long-term assets that are expected to be owned for more than one year. Accumulated Depreciation is the total amount of depreciation expensed since assets were purchased. The amount shown in the balance sheet for property, plant and equipment are the cost of acquiring the asset (purchase price, or historical cost) and includes the cost to put the asset in service, such as installation, training, testing, etc. Acquisition cost less accumulated depreciation equals book value. Book value , allows the reader to know how much is the asset worth at the time the balance sheet was published. Remember that Land is not depreciated unless the land was purchase to extract minerals or other natural resources in which case it is called depletion . Goodwill The amount paid for the business beyond the worth of its assets. Example, company A purchase company B and pays 1 million dollars. Company B assets are value at $800,000. The additional $200,000 paid for company B will be considered goodwill. Other Assets These include other long-term assets such as Investments and Intangible assets.
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Prepared by Anna Rovira Beavers for Financial Accounting, Laney College November, 2008 Reproduction of this guide is prohibited without consent of the author. 3 LIABILITIES: Current Liabilities These are the amounts owed to creditors that are expected to be repaid within twelve months. This includes Accounts Payable, Salaries Payable, Taxes Payable, etc. Long-Term Liabilities These are amounts owned to creditors that are expected to be repaid in more that twelve months. Examples include bond payable, mortgage payable, and long term debt. STOCKHOLDERS’ EQUITY Contributed Capital It includes amounts paid (contributed) by stockholders to purchase common stock and preferred stock. Accounts include common stock and additional-paid-in capital.
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This note was uploaded on 03/10/2011 for the course BUS 1B taught by Professor Kite during the Spring '11 term at Laney College.

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Chapter 12 - Financial Analysis Guide - FINANCIAL ANALYSIS...

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