韩山师范学院财务管理课件第二章 Review of Accounting.ppt

Chapter 2 Review of Accounting Chapter 2 – Outline LT 2-1 Income Statement (I/S) P/E Ratio Balance Sheet (B/S) Statement of Cash Flows (CFs) Tax-Free Investments 3 Basic Financial Statements LT 2-2 Income Statement (I/S) Balance Sheet (B/S) Statement of Cash Flows (CFs) Income Statement LT 2-3 An Income Statement shows profitability Sales - Cost of Goods Sold (COGS) = Gross Profit (GP) GP - Expenses = Earnings Before Interest and Taxes (EBIT) or Operating Income (OI) EBIT - Interest = Earnings Before Taxes (EBT) EBT - Taxes = Earnings After Taxes (EAT) or Net Income (NI) P/E Ratio LT 2-4 P/E Ratio = Price/Earnings Ratio P/E Ratio = Market Price of Stock / Earnings per share (EPS) Way of measuring desirability of a stock Indicates expectations about future of a company Balance Sheet LT 2-5 A Balance Sheet (B/S) shows what a firm owns and what it owes Remember the ALOE! Assets = Liabilities + Owners’ Equity Statement of Cash Flows LT 2-6 The Statement of Cash Flows (CFs) measures the flow of cash throughout a firm CF from operating activities PLUS CF from financing activities PLUS CF from investing activities EQUALS Net increase (decrease) in cash Accrual Method of Accounting LT 2-7 Will be used in finance Revenues and expenses are recognized when they occur, rather than when cash changes hands For example, a credit sale in December 2003 is shown as revenue in that year (2003), even though payment is not received until March 2004 Income Tax Considerations LT 2-8 Income taxes affect financial decisions. For instance, there is “double taxation”of corporate earnings. This means that the same $ is taxed twice: Corporate income tax (on earnings) Personal income tax (on dividends) Tax-Free Investments LT 2-9 Municipal Bonds are: –exempt from federal income tax – issued by local governments (or municipalities) To compare a municipal to a taxable bond: After-tax i rate = Actual i ra