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Unformatted text preview: Finance 310 Prof. Gamble FINANCIAL STATEMENTS Goals: Understand the construction of basic statements and the nature of the information they contain. Be able to calculate standard ratios and explain the relevance of the analysis. Know the basics of financial planning and how pro-forma statements are constructed. Reading: Chapter 9 - Financial Statements and Analysis Chapter 10 - Cash Flow and Financial Planning Financial Statements accounting reports that present financial information The Securities and Exchange Commission (SEC) requires public companies with more than $5 million in assets and 500 or more stockholders to provide public financial statements, including the 1) income statement, 2) balance sheet, 3) statement of cash flows, and 4) statement of stockholders equity. Financial statements must be produced according to the Generally Accepted Accounting Principles (GAAP), which are determined by the Financial Accounting Standards Board (FASB). Financial statements must be reviewed by an auditor an independent 3 rd party that checks and verifies the accuracy of the information presented in the statements. What is the importance of these requirements for disclosure and independent verification? The Income Statement a list of a firms revenue and expenses net income or earnings- a measure of a firm's profit; the "bottom line" EBIT - earnings before interest and taxes are deducted EBITDA- earnings before interest, taxes, depreciation, and amortization EPS - earnings per share of stock; Example: GOOG earnings per share 2 Sample Income Statement ($000) 2010 Sales revenue $3,074 Less: Cost of goods sold 2,088 Gross profits Less: Operating expenses Selling expense $ 100 General and administrative expense 194 Lease expense 35 Depreciation expense 239 Total operating expense Operating profits/EBIT Less: Interest expense 93 Net profits before taxes Less: Taxes (rate = 29%) Net profits after taxes Less: Preferred stock dividends 10 Earnings available for common stockholders Earnings per share (EPS) [ 76,262 shares outstanding ] The Balance Sheet a list of a firms assets, liabilities, and shareholders' equity assets- things owned, such as the cash, inventory, property, plant and equipment, and other investments liabilities- things owed; a firm's obligations to its creditors...
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- Spring '08