Prentice Hall's one-day MBA in finance & accounting by Michael Muckian, Prentice-Hall, inc Page A
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Assets and liabilities are familiar to most people—although the values reported in this financial statement are not immediately obvious to many readers. The statement of cash flows is presented in a very technical format that makes the statement very difficult to read, even for sophisticated investors.
The footnotes that accompany the company’s financial statements are not presented here for the business. Footnotes often run several pages. Footnotes, although difficult and time-consuming to read through, contain very important information. Stock analysts and investment managers scour the footnotes in financial reports, digging for important information about the business. The footnotes are not needed for explaining financial statement ratios. (For a discussion of footnotes, see Chapter 16 in my book How to Read a Financial Report, 5th ed., John Wiley & Sons, 1999.) Publicly owned businesses present their financial statements in a format that compares the most recent three years (as required by SEC rules). The three-year comparative format makes it easier to follow trends, of course. Many privately 43
F I N A N C I A L R E P O R T I N G
Assets
At Close of
At Close of
Year Just
Preceding
Ended
Year
Cash
$ 2,345,675
$ 2,098,538
Accounts receivable
$ 3,813,582
$ 3,467,332
Inventories
$ 5,760,173
$ 4,661,423
Prepaid expenses
$
822,899
$
770,024
Total current assets
$12,742,329
$10,997,317
Property, plant, and equipment
$20,857,500
$18,804,030
Accumulated depreciation
($ 6,785,250)
($ 6,884,100)
Cost less accumulated depreciation
$14,072,250
$11,919,930
Total assets
$26,814,579
$22,917,247
Liabilities and Owners’ Equity
Accounts payable
$ 2,537,232
$ 2,180,682
Accrued expenses payable
$ 1,280,214
$ 1,136,369
Income tax payable
$
58,650
$
117,300
Short-term debt
$ 2,250,000
$ 1,765,000
Total current liabilities
$ 6,126,096
$ 5,199,351
Long-term debt
$ 7,500,000
$ 5,850,000
Total liabilities
$13,626,096
$11,049,351
Capital stock (422,823 and 420,208 shares)
$ 4,587,500
$ 4,402,500
Retained earnings
$ 8,600,983
$ 7,465,396
Total owners’ equity
$13,188,483
$11,867,896
TEAMFLY
Total liabilities and owners’ equity
$26,814,579
$22,917,247
FIGURE 4.2 Statement of financial condition at close of the year just ended and at close of the preceding year.
owned businesses present their financial statements for two or three years, although practice is not uniform in this respect.
The company’s income statement (Figure 4.1) and statement of cash flows (Figure 4.3) are presented for the most recent year only. The statement of financial condition (Figure 4.2) is presented at the close of its two most recent two years. Finan-
cial statement ratios are calculated for each year. The ratios are calculated the same way for all years for which financial 44
Team-Fly®
I N T E R P R E T I N G F I N A N C I A L S T A T E M E N T S
Cash Flows from Operating Activities
Net income
$1,585,587
Changes in operating assets and liabilities:
Accounts receivable
($ 346,250)
Inventories
($1,098,750)
Prepaid expenses
($
52,875)
Depreciation expense
$ 768,450
Accounts payable
$ 356,550
Accrued expenses payable
$ 143,845
Income tax payable
($
58,650)
Cash flow from operating activities
$1,297,907
Cash Flows from Investing Activities
Investment in property, plant, and equipment
($3,186,250)
Proceeds from disposals of property, plant, and equipment $ 265,480
Cash used in investing activities
($2,920,770)
Cash Flows from Financing Activities
Net increase in short-term debt
$ 485,000
Increase in long-term debt
$1,650,000
Issuance of capital stock shares
$ 185,000
Cash dividends to stockholders
($ 450,000)
Cash from financing activities
$1,870,000
Cash increase during year
$ 247,137
Cash balance at beginning of year
$2,098,538
Cash balance at end of year
$2,345,675
FIGURE 4.3 Statement of cash flows for
Assets and liabilities are familiar to most people—although the values reported in this financial statement are not immediately obvious to many readers. The statement of cash flows is presented in a very technical format that makes the statement very difficult to read, even for sophisticated investors.
The footnotes that accompany the company’s financial statements are not presented here for the business. Footnotes often run several pages. Footnotes, although difficult and time-consuming to read through, contain very important information. Stock analysts and investment managers scour the footnotes in financial reports, digging for important information about the business. The footnotes are not needed for explaining financial statement ratios. (For a discussion of footnotes, see Chapter 16 in my book How to Read a Financial Report, 5th ed., John Wiley & Sons, 1999.) Publicly owned businesses present their financial statements in a format that compares the most recent three years (as required by SEC rules). The three-year comparative format makes it easier to follow trends, of course. Many privately 43
F I N A N C I A L R E P O R T I N G
Assets
At Close of
At Close of
Year Just
Preceding
Ended
Year
Cash
$ 2,345,675
$ 2,098,538
Accounts receivable
$ 3,813,582
$ 3,467,332
Inventories
$ 5,760,173
$ 4,661,423
Prepaid expenses
$
822,899
$
770,024
Total current assets
$12,742,329
$10,997,317
Property, plant, and equipment
$20,857,500
$18,804,030
Accumulated depreciation
($ 6,785,250)
($ 6,884,100)
Cost less accumulated depreciation
$14,072,250
$11,919,930
Total assets
$26,814,579
$22,917,247
Liabilities and Owners’ Equity
Accounts payable
$ 2,537,232
$ 2,180,682
Accrued expenses payable
$ 1,280,214
$ 1,136,369
Income tax payable
$
58,650
$
117,300
Short-term debt
$ 2,250,000
$ 1,765,000
Total current liabilities
$ 6,126,096
$ 5,199,351
Long-term debt
$ 7,500,000
$ 5,850,000
Total liabilities
$13,626,096
$11,049,351
Capital stock (422,823 and 420,208 shares)
$ 4,587,500
$ 4,402,500
Retained earnings
$ 8,600,983
$ 7,465,396
Total owners’ equity
$13,188,483
$11,867,896
TEAMFLY
Total liabilities and owners’ equity
$26,814,579
$22,917,247
FIGURE 4.2 Statement of financial condition at close of the year just ended and at close of the preceding year.
owned businesses present their financial statements for two or three years, although practice is not uniform in this respect.
The company’s income statement (Figure 4.1) and statement of cash flows (Figure 4.3) are presented for the most recent year only. The statement of financial condition (Figure 4.2) is presented at the close of its two most recent two years. Finan-
cial statement ratios are calculated for each year. The ratios are calculated the same way for all years for which financial 44
Team-Fly®
I N T E R P R E T I N G F I N A N C I A L S T A T E M E N T S
Cash Flows from Operating Activities
Net income
$1,585,587
Changes in operating assets and liabilities:
Accounts receivable
($ 346,250)
Inventories
($1,098,750)
Prepaid expenses
($
52,875)
Depreciation expense
$ 768,450
Accounts payable
$ 356,550
Accrued expenses payable
$ 143,845
Income tax payable
($
58,650)
Cash flow from operating activities
$1,297,907
Cash Flows from Investing Activities
Investment in property, plant, and equipment
($3,186,250)
Proceeds from disposals of property, plant, and equipment $ 265,480
Cash used in investing activities
($2,920,770)
Cash Flows from Financing Activities
Net increase in short-term debt
$ 485,000
Increase in long-term debt
$1,650,000
Issuance of capital stock shares
$ 185,000
Cash dividends to stockholders
($ 450,000)
Cash from financing activities
$1,870,000
Cash increase during year
$ 247,137
Cash balance at beginning of year
$2,098,538
Cash balance at end of year
$2,345,675
FIGURE 4.3 Statement of cash flows for
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