WileyPLUS Chapter Two Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. WileyPLUS Chapter Two SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement …show more content…
Current assets - Cash and other resources that companies reasonably expect to convert to cash or use up within one year or the operating cycle, whichever is longer. Current liabilities - Obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer. Current ratio - A measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities. Debt to total assets ratio - Measures the percentage of total financing provided by creditors; computed as total debt divided by total assets. Earnings per share (EPS) - A measure of the net income earned on each share of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year. Economic entity assumption - An assumption that every economic entity can be separately identified and accounted for. Financial Accounting Standards Board (FASB) - The primary accounting standard-setting body in the United States. Copyright © 2009 John Wiley & Sons, Inc. All rights reserved. WileyPLUS Chapter Two Free cash flow - Cash remaining from operating activities after adjusting for capital expenditures and dividends paid. Full disclosure principle - Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users. Generally accepted accounting
Free cash flows are the monies available for distribution to all investors after paying current expenses, taxes, and making the investments necessary for growth.
In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial
Fraser, L. M., & Ormiston, A. (201). Understanding financial statements (9th ed.). Upper Saddle River, NJ: Prentice Hall.
As a creditor or lender it is of utmost importance that they have all the information necessary to make a sound decision as to whether or not they will lend money to a company. The retained earnings statement, balance sheet, and statement of cash flows will paint that picture for a creditor due to the fact that they will see where the company’s money is being earned and spent through the statement of cash flows, they will see how they are either paying out dividends to investors or reinvesting the money into the business through the retained earning statements, and how solvent the business is by looking at the balance sheet.
The analysis of a company's financial statements helps in the determination of both the weaknesses and strengths of the concerned entity. Further, such an analysis helps in the determination of the future viability of firms. There are a wide range of techniques utilized in the analysis of financial statements. In that regard, it is important to note that the relevance of a horizontal, vertical as well as ratio analysis of a company's financial statements cannot be overstated. This is more so the case when it comes to the interpretation of the various dollar amounts presented in both the balance sheet and the income statement. In this text, I carry out a horizontal, vertical as well as ratio analysis of both The Coca-Cola Company and PepsiCo, Inc. The analysis' results will be critical in the evaluation of each company's performance. Findings will be used as a basis for recommendations on how each company can improve its financial status.
Assets and liabilities are bifurcated in current and non-current. Current asset is defined as any asset which can be converted into cash readily and will be used within one accounting period normally 1 year e.g. Receivables, Inventory, Prepaid Expenses.
A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt.
Every company for example Wal-Mart worries about its profitability. One of the most regularly utilized implements of financial ratio analysis is profitability ratios which are utilized to figure out the bottom line of the company. Profitability measures are vital to corporation managers and owners alike. If a small industry has outside stockholders who have put their own money into the corporation, the primary owner surely has to show profitability to those equity stockholders. (Blanchard, 2008)
30. Free cash flow is cash flow that is available for distribution to all of the company’s investors (stockholders and creditors) after paying current expenses (other than interest) and taxes, maintain adequate working capital, and making the investments necessary for growth.
This paper provides the horizontal and vertical analysis of the income statement and the balance sheet. Equally, financial ratios have been computed to show the leverage, liquidity, efficiency, profitability and the equity of the Hewlett Packard enterprises. Recommendations and conclusion have been made on the results depicted by the analysis. Lastly, an evaluation was made on the different ways that stakeholders utilize the financial statements.
It is important to understand the differences in how earnings and liabilities are generated or reported for different financial institutions. This paper will describe key points regarding the balance sheets of different financial institutions. Commercial Banks must mitigate interest rate and default risk, however, when a major financial crisis erupts they must have enough reserves on hand to cover their liabilities. Insurance companies use the float from the premiums paid in to invest their
Balance sheets and income statements are a snapshot of a company’s stability and financial situation. Combined the statements show the income, expenses, and stockholder’s equity in the company. These statements are often analyzed by financial institutions when a company comes to them needing a loan. Stockholders and other investors also look at these statements to make sure their investment will return a profit for them. This paper will look at four different companies and their balance sheets and income statements. The companies are Eastman Chemical Company, Covenant Transportation
The income statement deals with the revenues and expenses a company incurs for a period of time (Kimmel, Weygandt, & Kieso, 2009). This financial statement reports the success or failure of the company’s operating and non-operating activities. The retained earnings statement shows the amounts and causes of changes in retained earnings during the period (Kimmel, Weygandt, & Kieso, 2009). This statement brings together the beginning and ending retained earnings for the period, using information such as net income from the company’s other financial statements. A company’s balance sheet reports assets and claims to assets at a specific point in time (Kimmel, Weygandt, & Kieso, 2009). In other words, the balance sheet summarizes a company’s assets, liabilities, and stockholder’s equity. These three segments give investors, creditors, and managers an idea as to what the company owns and owes, as well as the
The balance sheet is used to see the overall picture of a company's financial position. It shows what the company has, how much it owes, and its net worth at the end of a given period. It follows the accounting formula: assets equal liabilities plus owners' equity. It shows the company's assets, and its short- and long-term debt.
A company's accounting department may perform financial statement analysis throughout the year or at a specific point in time, this refers to the time frame.