Limitations of Balance Sheet
(2)
1. Does not portray market value of entity as a going concern/liquidation value
2. Resources (employee skills, rep) not recorded
Uses of Balance Sheet
(3)
1. Future cash flows
2. Liquidity information
3. long-term solvency information (riskiness)
Assets
Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
Current Assets (6)
1. cash
2. cash equivalents
3. st investments
4. receivables
5. inventories
6. prepaid expenses
Operating Cycle
1. Acquire RM
2. RM to Finished Product
3. Deliver
4. Collect Cash
Noncurrent Assets (4)
1. investments
2. ppe
3. intangible assets
4. other assets
Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities as a result of past transactions or events
Current Liabilities (5)
1. AP
2. NP
3. Accrued liabilities
4. unearned revenues
5. current maturites of LT debt
LT Liabilities (5)
1. LT Notes
2. Mortgages
3. LT Bonds
4. Pensions Obligations
5. Lease Obligations
Shareholders' Equity
residual interest of assets after deducting liabilities
Summary of Significant Accounting Policies
Conveys valuable information about company's choices from among various alternative accounting methods
Subsequent Events
Significant development that occurs after the company's fiscal year end but BEFORE the financial statements are issued
Noteworthy Events & Transactions
Potentially important to evaluating financial statements
MGMT. Discussion & Analysis
Biased but informed perspective of company's operations, liquidity, and capital resources
MGMT. Responsibilities (2)
1. Preparing financial statements & Other info in annual report
2. Maintain/Assess internal control procedures
Auditors Report
Opinion of fin. statements in conformity of GAAP.
Mustcomply with PCAOB
Auditors Opinion
1. Unqualified
2. Qualified
3. Adverse
4. Disclaimer
Unqualified
Exception that is not of sufficient seriousness to invalidate the financial statments as a whole **
Qualified
Financial statements present fairly the fin. position, result of operations, and CF are in conformity with GAAP
Adverse
Exceptions are so serious that qualified opinion is not justified
Disclaimer
Insufficient Information has been gathered
Comparative Financial Statements
Compare Year-to-Year financial position, operatins, CF
Horizontal Analysis
Each item as a percentage of the same item in another year (base)
Vertical Analysis
Each item as a percentage of appropriate corresponding total
Ratio Analysis
Control for size differences over time and among firms
Current Ratio
(Liquidity)
CA/CL
Satisfy st liabilities
Acid-Test Ratio
(Liquidity)
Quick Assets/CL
Stringent indication to satisfy st liabilities
Debt-to-Equity Ratio
(Financing)
TL/SE
Extent of reliance on creditors, rather than owners to provide resources
Times interest earned Ratio
(NI+Interest Exp+Income Tax)/Int Exp
Margin of safety provided to characters
