Chapter 2: Understanding Financial Statements PDF

Understanding Financial Statements 1 Learning Objectives  Able to identify between the types documents in financial statement  Understand the role & importance of financial statement 2 FINANCIAL STATEMEN...

Understanding Financial Statements 1 Learning Objectives  Able to identify between the types documents in financial statement  Understand the role & importance of financial statement 2 FINANCIAL STATEMENT Balance sheet Income statement Cash flow statement Retained earning statement 3 Balance Sheet A statement/snapshot of a firm’s financial position at a specific point in time Left-hand side: firm’s investment decisions in assets Right-hand side: firm’s financing decisions consist of liabilities and equity 4 Balance Sheet 5 Balance Sheet Statement Mekar Inc. Balance sheet as 31 December 2017 (in thousands of RM) Assets 2016 2017 Liabilities &equities 2016 2017 Current Assets Current liabilities Cash 28 97 Account payables 64 95 Marketable securities 42 10 Notes payable 20 87 Account receivables 93 128 other current liabilities 95 75 Inventories 65 85 Total current liabilities 179 257 Total current asset 228 320 Long-term liabilities Long-term debt 297 318 Gross Fixed asset 887 1020 Equities Less: Depr.eciation 226 285 Common stock@RM1 140 160 Net Fixed Asset 661 735 paid in capital 108 120 Retained Earning 165 200 _____________ _____________ Total assets 889 1055 Total liab.& equity 889 1055 6  INCOME STATEMENT  REVENUES/SALES  Increase in capital arising from sale of gds/services – cash/a/c receivable.  EXPENSES  Decrease in capital due to activities to generate sales – COGS / GAD  R – E = NET INCOME /EAT 7 Income Statement Mekar Inc: Income Statement for the Yr ended 31 December 2017 (thousands of RM) 2016 2017 Sales/Revenue 900 960 Less: Cost of good sold 540 624 Gross Profit 360 336 Less: General & admin.expenses 200 167 Depreciation 20 19 Operating income (EBIT) 140 150 Less: interest 32 30 Earning before tax (EBT) 108 120 Less: taxes (40%) 43.2 48 Earning after tax (EAT/NI) 64.8 72 Less: preferred stock dividend - - Earning available to common shareholder 64.8 72 Less: common stock dividend 39.8 37 Addition to Retained earning 25 35 8 STATEMENT OF RETAINED EARNINGS  The distribution of income (earnings not paid as dividend).  Depends on dividend policy STATEMENT OF CASH FLOWS  Actual cash generated over the period  CFO, CFI & CFF 9 Statement of Retained Earning Mekar Inc. Statement of Retained Earning for year ended 31 December 2017 Balance of RE, Dec, 31 2016 RM165,000 Add: EAT 2017 72,000 Less: Dividend paid to common stockholder 2017 37, 000 Balance of retained earning, Dec 2017 RM200,000 Market and Per Share Data 2016 2017 Share Outstanding 140,000 160,000 EPS RM0.46 RM0.45 DPS RM0.28 RM0.23 Closing Mkt Price on Dec,31 RM12.00 RM13.50 10