3achapter13 - Financial Accounting: Chapter 13 Tools for...

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1 13-1 Financial Accounting: Tools for Business Decision Making, 4th Edition Kimmel, Weygandt, Kieso CHAPTER 13 FINANCIAL ANALYSIS: The Big Picture 13-2 Chapter 13 After studying Chapter 13, you should be able to: Understand the concept of “CONTINUING” operations and the importance of a multiple- step income statement presentation. Explain the concept of comprehensive income. Interpret financial statements, including the use of ratio analysis. 13-3 KEEPIN’ IT REAL: A strong analytic includes first developing an expectation. Also, can we use financial statements to prove/ disprove some of the “economics” you are learning? How’s the economy been doing? What sort of effect do you suppose that may have on financial statements? “Price elasticity” and “law of demand”… how about WalMart? Have a look: http://sec.gov/cgi-bin/browse- What economic principle is that? “GIffen Goods” 13-4 Sustainable Income. .. “CONTINUING OPERATIONS” REMEMBER: FINANCIAL STATEMENTS TELL WHAT HAPPENED (PAST TENSE) TO USERS WHO WANT TO DEVELOP EXPECTATIONS ABOUT WHAT IS GOING TO HAPPEN. Thus a need for a MULTIPLE STEP INCOME STATEMENT, which: Segregates the continuing operations from two principle items which are NOT continuing:: Discontinued Pperations and Extraordinary Items WHY DO POTENTIAL NEW INVESTORS AND CREDITORS CARE ABOUT WHAT ALREADY HAPPENED? THE PAST IS A STRONG INDICATOR OF THE FUTURE. 11 1
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2 13-5 Components of the MULTIPLE STEP Income Statement Revenue X COGS Y Gross Profit x-y=GP Operating expenses A Income before taxes GP-A=IBT Taxes Tax rate*IBT=T Inc. from continuing Op’s ICO=IBT-T Discontinued op’s (Net of Tax!) D Extraordinary items (Net of Tax!) E Net Income ICO+-D+-E Typical examples: Depreciation exp. Rent
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3achapter13 - Financial Accounting: Chapter 13 Tools for...

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