Financial Statements PDF

 Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.  Investors...

 Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.  Investors and financial The financial statements are analysts rely on financial data to used by investors, market analysts, analyze the performance of a and creditors to evaluate a company and make predictions about company's financial health and its future direction of the company's earnings potential. The three major stock price. One of the most financial statement reports are the important resources of reliable and balance sheet, income statement, audited financial data is the annual and statement of cash flows. report, which contains the firm's financial statements. Cash flow statement The balance sheet provides an overview of a company's assets, liabilities, and stockholders' equity as a snapshot in time. The date at the top of the balance sheet tells you when the snapshot was taken, which is generally the end of the fiscal year.  The Balance Sheet Formula Assets = (Liabilities + Owner’s Equity) The balance sheet totals will be calculated already, but here's how you identify them. ⦁ Locate total assets on the balance sheet for the period. ⦁ Total all liabilities, which should be a separate listing on the balance sheet. It may not include contingent liabilities. ⦁ Locate total shareholder's equity and add the number to total liabilities. ⦁ Total assets should equal the total of liabilities and total equity. The balance sheet identifies how assets are funded, either with liabilities, such as debt, or stockholders' equity, such as retained earnings and additional paid-in capital. Assets are listed on the balance sheet in order of liquidity. Liabilities are listed in the order in which they will be paid. Short-term or current liabilities are expected to be paid within the year, while long-term or non-current liabilities are debts expected to be paid in over one year.  Items Included in the Balance Sheet Below are examples of items listed on the balance sheet. Assets Cash and cash equivalents are liquid assets, which may include Treasury bills and certificates of deposit. Accounts receivables are the amount of money owed to the company by its customers for the sale of its product and service. Inventory Liabilities Debt including long-term debt Wages payable Dividends payable Shareholders' Equity Shareholders' equity is a company's total assets minus its total liabilities. Shareholders' equity represents the amount of money that would be returned to shareholders if all of the assets were liquidated and all of the company's debt was paid off. Retained earnings are part of shareholders' equity and are the amount of net earnings that were not paid to shareholders as dividends. Example of a Balance Sheet Below is a portion of Smart Co. Balance Sheet as of September 30, 2018. Total assets were P3,546,280 Total liabilities were P1,577,970 Total equity was P1,968,310 Total liabilities and equity were P3,546,280, which equals the total assets for the period.  Unlike the balance sheet, the income statement covers a range of time, which is a year for annual financial statements and a quarter for quarterly financial statements. The income statement provides an overview of revenues, expenses, net income and earnings per share. It usually provides two to three years of data for comparison. Income Statement Formula and Calculation Net Income = (Revenue−Expenses). Total all revenue or sales for the period.. Total all expenses and costs of operating the business.. Subtract total expenses from revenue to achieve net income or the profit for the period. An income statement is one of the three important financial statements used for reporting a company's financial performance over a specific accounting period. Also known as the profit and loss statement or the statement of revenue and expense, the income statement primarily focuses on a company’s revenues and expenses during a particular period. Once expenses are subtracted from revenues, the statement produces a company's profit figure called net income. Operating revenue is the revenue earned by selling a company's products or services. The operating revenue for an auto manufacturer would be realized through the production and sale of autos. Operating revenue is generated from the core business activities of a company. Non-operating revenue is the income earned from non-core business activities. These revenues fall outside the primary function of the business. Some non-operating revenue examples include: Interest earned on cash in the bank Rental income from a property Income from strategic partnerships like royalty payment receipts Income from an advertisement display located on the company's property Other income is the revenue earned from other activities. Other income could include gains from the sale of long-term assets such as land, vehicles, or a subsidiary. Primary expenses are incurred during the process of earning revenue from the primary activity of the business. Expenses include the cost of goods sold (COGS), selling, general and administrative expenses (SG&A), depreciation or amortization, and research and development (R&D). Typical expenses include employee wages, sales commissions, and utilities such as electricity and transportation. Expenses that are linked to secondary activities include interest paid on loans or debt. Losses from the sale of an asset are also recorded as expenses. The main purpose of the income statement is to convey details of profitability and the financial results of business activities. However, it can be very effective in showing whether sales or revenue is increasing when compared over multiple periods. Investors can also see how well a company's management is controlling expenses to determine whether a company's efforts in reducing the cost of sales might boost profits over time. Example of an Income Statement Below is a portion of Exxon Mobil Corporation's (XOM) income statement as of September 30, 2018. Total revenues were P76,605 for the period. Total costs were P67,525. Net income or profit was P9,080.  The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations, fund its operating expenses, and fund investments. The cash flow statement complements the balance sheet and income statement.  The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how money is being spent. The CFS also provides insight as to whether a company is on a solid financial footing.  The operating activities on the CFS include any sources and uses of cash from running the business and selling its products or services. Cash from operations includes any changes made in cash, accounts receivable, depreciation, inventory, and accounts payable. These transactions also include wages, income tax payments, interest payments, rent, and cash receipts from the sale of a product or service.  Investing activities include any sources and uses of cash from a company's investments into the long-term future of the company. A purchase or sale of an asset, loans made to vendors or received from customers, or any payments related to a merger or acquisition is included in this category. Also, purchases of fixed assets such as property, plant, and equipment (PPE) are included in this section. In short, changes in equipment, assets, or investments relate to cash from investing.  Cash from financing activities include the sources of cash from investors or banks, as well as the uses of cash paid to shareholders. Financing activities include debt issuance, equity issuance, stock repurchases, loans, dividends paid, and repayments of debt. The cash flow statement reconciles the income statement with the balance sheet in three major business activities. Example of a Cash Flow Statement Below is a portion of Exxon Mobil Corporation's (XOM) cash flow statement as of September 30, 2018. We can see the three areas of the cash flow statement and their results. Operating activities generated a positive cash flow of P274,070 for the period. Investing activities generated negative cash flow or cash outflows of - P108,620 for the period. Additions to property, plant, and equipment made up the majority of cash outflows, which means the company invested in new fixed assets. Financing activities generated negative cash flow or cash outflows of -P139, 450 for the period. Reductions in short-term debt and dividends paid out made up the majority of the cash outflows.  Although financial statements provide a wealth of information on a company, they do have limitations. The statements are open to interpretation, and as a result, investors often draw vastly different conclusions about a company's financial performance. For example, some investors might want stock repurchases while other investors might prefer to see that money invested in long-term assets. A company's debt level might be fine for one investor while another might have concerns about the level of debt for the company. When analyzing financial statements, it's important to compare multiple periods to determine if there are any trends as well as compare the company's results its peers in the same industry. KEY TAKEAWAYS The income statement primarily focuses on a company’s revenues and expenses during a particular period. Once expenses are subtracted from revenues, the statement produces a company's profit figure called net income. The balance sheet provides an overview of assets, liabilities, and stockholders' equity as a snapshot in time.  The cash flow statement (CFS) measures how well a company generates cash to pay its debt obligations, fund its operating expenses, and fund investments.