财务管理基础13版BRD2Review of Accounting.ppt

Review of Accounting 2 Chapter Outline Income Statement Price-earnings Ratio Balance Sheet Statement of Cash Flows Tax-free Investments (Deprecation) Basic Financial Statements Income Statement Balance Sheet Statement of Cash Flows Income Statement Device to measure the profitability of a firm over a period of time It covers a defined period of time It is presented in a stair-step or progressive fashion to examine profit or loss after each type of expense item is deducted /financials/MMM/annual_income_statement Income Statement (cont’d) 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) Income Statement (cont’d) Return to Capital Three primary sources of capital: Bondholders Preferred stockholders Common stockholders Earnings per share Interpreted in terms of number of outstanding shares May be paid out in dividends or retained by company for subsequent reinvestment Statement of retained earnings Indicates disposition of earnings Statement of Retained Earnings Price-Earnings (P/E) Ratio Multiplier applied to earnings per share to determine current value of common stock Some factors that influence P/E: Earnings and sales growth of the firm Risk (volatility in performance) Debt-equity structure of the firm Dividend payment policy Quality of management Price-Earnings (P/E) Ratio (cont’d) Allows comparison of the relative market value of many companies based on $1 of earnings per share Indicates expectations about the future of a company Price-earnings ratios can be confusing Price-earnings Ratios for Selected US Companies Limitations of the Income Statement Income gained/lost during a given period is a function of verifiable transactions Stockholders, hence, may perceive only a much smaller gain/loss from actual day-to-day operations Flexibility in reporting transaction