Components of Financial Statements
Shows everything a company owns (its assets), everything it owes to others and how it is financed (its liabilities and equity)
Statement of Financial Position
Items that are property or have economic value to the corporation
Assets
Not expected to be held longer than one year
Current Assets
Expected to be held for more than a year
Non-Current Assets
Legal tender, bank deposits, along with cash equivalents (short term, highly liquid investments that are readily convertible into known amounts of cash).
Cash and cash equlvalents
Liquid and short-term investments such as Treasury bills; companies often include marketable securities as cash and equivalents.
Marketable Securities
Amounts due currently from customers under standard invoicing terms.
Trade Receivables
An amount that management believes might not be collectible from customers; the net amount of trade receivables (trade receivables minus the allowance for doubtful accounts) is shown on the statement of financial position.
Allowance for Doubtful Accounts
Consists of the goods and supplies that a company keeps in stock.
Inventories
Cost of the company's ownership of other companies, not wholly owned and not consolidated; indicates more control but substantially less liquidity than investments in marketable securities.
Investments in Associates
Amounts owed to the company through promissory notes and notes due from officers.
Notes Receivable
Fixed assets used in the company's generation of goods and services, including land, buildings, machinery and equipment; amounts (with the exception of land) are shown "gross" and "net" after subtracting accumulated depreciation.
Property, Plant and Equipment
Depreciation
The sum of amounts expensed to date as depreciation for each asset carried under property, plant and equipment; note that land is never depreciated.
Generally understood to represent the value of a well-respected business -its name, customer relations, employee relations, among others. Goodwill is considered an intangible asset, which is an asset that has no physical substance.
Goodwill
The sum of amounts expensed to date for amortization of intangible assets, which are assets that have no physical substance, such as goodwill, or patents. Amortization is similar to depreciation for fixed assets.
Amortization
Name the 5 Current Asset Categories
Cash and cash equlvalents
Marketable Securities
Trade Receivables
Allowance for Doubtful Accounts
Inventories
Name the 6 types of Investments and Other Non-Current Assets
Investments in Associates
Notes Receivable
Property, Plant and Equipment
Depreciation
Goodwill
Amortization
What a company owes to others
Liabilities
What is a short-term liability called?
Current Liability
What is a long-term liability called?
Non-Current Liability
Name the 5 types of Current Liabilities
Bank Overdrafts
Notes Payable
Current Portion of Long-Term Debt
Trade Payables
Taxes Payable
Name the 2 types of Non-Current Liabilities
Long-Term Debt
Deferred Tax Liabilities
A negative cash position at the bank on the company's books; whenever cash assets are reported as a negative amount, reclassify the amount to a current liability.
Bank Overdrafts
Amounts owed to banks under promissory notes.
Notes Payable
The portion of scheduled, long-term obligations that is due within one year.
Current Portion of Long-Term Debt
Amounts owing to suppliers for goods or services purchased, typically on terms of 30 to 60 days.
Trade Payables
The taxes payable to the government in the near term.
Taxes Payable
Amounts due after one year, including bank loans, mortgages, bonds, debentures and obligations under capital leases.
Long-Term Debt
Represents income tax payable in future periods, resulting from the difference between tax reporting on financial statements versus tax payable to the government.
Deferred Tax Liabilities
That which belongs to the company owners after they have paid all monies owing
Equity
Name the 3 types of Equity
Share Capital
Non-Controlling Interest
Retained Earnings
Represents the amount received by the company for its shares at the time they were issued. Share Capital is not related to the current market value of the company's shares.
Share Capital
Represents that part of a subsidiary not owned by the parent company. Non-controlling Interest is considered to be the ownership interest that outsiders have in the subsidiary company that is controlled, but not fully owned, by the parent company.
Non-Controlling Interest
The amount of profit earned by the business, less any money taken out by the owners.
Retained Earnings
Shows a breakdown of the sources of a company's revenue and expenses
Statement of Comprehensive Income
From what statement can a company's profit be determined?
Statement of Comprehensive Income
Excess of revenue over expenses
Profit
Records changes to each component of equity, including changes to share capital and retained earnings
Statement of Changes in Equity
The Statement of changes in equity shows the link between....
The Statement of Comprehensive Income and the Statement of Financial Position
One of the most important characteristics of a company that we should consider when we are deciding whether or not to invest in it.
Statement of Cash Flows
Provides a broader picture of a company's earning power than do profits alone because cash flow allows us to see how much of the profit is available for growth
Statement of Cash Flows
Better Cash flow means....
More potential for future growth
Name the 3 types of Cash Flow Categories
Operating Activities
Financing Activities
Investing Activities
Includes all transactions that directly reflect the business activities of the company. These activities generally include sales and expenses that result in inflows and outflows of cash.
Operating Activities
Includes proceeds from issuing shares, long-term debt repayments and changes in bank loan terms. These activities are concerned with the flow of cash to or from debt holders, owners of the company or both.
Financing Activities
Includes the spending of cash to acquire fixed assets, the receipt of cash when assets or investments are sold, income from investments when received as cash, and similar items.
Investing Activities
Name the 4 types of Financial Ratios
Liquidity
Risk Analysis
Operating Performance
Value
Determines whether the company has enough assets to cover its current debt
Working Capital Ratio (Current Ratio)
What is the formula for Working Capital Ratio
WCR = Current Assets / Current Liabilities
What is the formula for Quick Ratio
QR = Current Assets - Inventories / Current Liabilities
Measures the manageability of the total debt level and interest payments (also known as debt service payments) of a company, thus showing how well a company can deal with its debt obligations
Risk Analysis
What is the formula for Interest Coverage Ratio
ICR = Profit before interest charges and taxes / interest charges
What is the formula for Debt-to-Equity Ratio
DTER = Total debt outstanding / Bookvalue of equity
Shows how well the management of the company has made use of the company's resources to turn a profit
Operating Performance Ratio
Relates the revenue of the company to its earnings for the same period
Net Profit Margin
What is the formula for Net Profit Margin
NPM = (Profit - Share of profit of associates / Revenue) / 100
Reveal a company's worth to shareholders. They show the value of the shares and the return a shareholder receives by owning them. As well, they enable an investor to compare one company's shares with those of other companies in the same industry
Value Ratiod
What is the formula for Earnings Per Common Share
EPS = Profit or loss attributable fo ordinary equity holders / weighted average number of common shares outstanding
What is the formula for Price-Earnings
PE = Current market price of common shares / earnings per share in the latest 12-month period
Year 1 = 100; so if year 1 is 1.18 you divide all years including year 1 by 1.18 x 100 to see which way the trend is going - up or down.
Trend Analysis