Media and Journalism Module Business and Economics For Reporters 9. Understanding key financial statements BER,Ppt9.ppt

Is a Company Viable? How do you find this out? What can you use to work out whether a company is making money or losing money? Whether a company is in serious trouble, whether it’s having a short term problem or just coasting along nicely? BER,Ppt9.ppt

This week’s lesson How to understand vital financial statements and make logical conclusions about what is going on with the finances of the company. How you can interpret these statements and understand what is going on in a firm. Annual Report - Key Financial Statements: Balance sheets Income statements Cash flows BER,Ppt9.ppt

Balance Sheets BER,Ppt9.ppt

Balance Sheet ASSETS LIABILITIES EQUITY BER,Ppt9.ppt

Assets Individual Village Company BER,Ppt9.ppt

Assets – Current / Non-current Assets are generally listed based on how quickly they will be converted into cash. Current assets: things a company expects to convert to cash within one year e.g. Inventory. Non-current assets: things a company does not expect to convert to cash within a year or that would take longer than one year to sell e.g. fixed assets, like warehouses, trucks, office furniture, property. BER,Ppt9.ppt

Liabilities Money that a company owes others. money borrowed from a bank to launch a new product rent for use of a building money owed to suppliers for materials payroll a company owes to its employees environmental cleanup costs taxes owed to the government obligations to provide goods or services to customers in the future BER,Ppt9.ppt

Liabilities Current and non-current liabilities Current liabilities are obligations a company expects to pay off within the year. Long-term liabilities are obligations due more than one year away – examples can include deferred tax liabilities or provisions for the future. BER,Ppt9.ppt

Equity Equity is sometimes called capital or net worth. The money left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners, of the company- Shareholder’s Equity. Companies may pay out earnings, instead of keeping them –dividends. BER,Ppt9.ppt

Assets = Liabilities + Equity Balancing the Sheet Assets = Liabilities + Equity BER,Ppt9.ppt www.principlesofaccounting.com/chapter%204.htm

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Income Statements BER,Ppt9.ppt

Income Statements A report that shows how much money a company earned over a specific time period. the costs and expenses associated with earning that revenue. The bottom line shows the company’s net earnings or losses - how much the company earned or lost over the period. Income statements report earnings per share (“EPS”). how much money shareholders would receive if the company decided to distribute all of the net earnings for the period. companies generally keep some earnings to reinvest in the business, so you hardly ever see a complete distribution of earning to shareholders. BER,Ppt9.ppt

Income Statement Components Gross Revenue / Gross Sales $ not expected e.g. returns Gross Profit Net Sales / Net Revenue BER,Ppt9.ppt

Income Statement Components Cost of Goods Sold Gross Profit Operating Expenses Operating profit before interest and income tax expenses BER,Ppt9.ppt

Income Statement Components Interest Income Other Income Other Non-Operating Expenses Operating Profit before Income Tax BER,Ppt9.ppt

Income Statement Components Income Tax Net Profit /(Loss) BER,Ppt9.ppt

R&D $ Expenses Advertising Taxes Admin Net Profit BER,Ppt9.ppt

Did the company make a profit or a (loss)? The Bottom Line Did the company make a profit or a (loss)? BER,Ppt9.ppt

Earnings Per Share (EPS) Net Income / No. of Shares BER,Ppt9.ppt

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Cash Flow Statements BER,Ppt9.ppt

Cash Flow Statements Statement of a company’s inflows and outflows of cash. Company needs to have enough cash on hand to pay its expenses and purchase assets. Tells you if the company actually generated cash. shows changes over time rather than absolute dollar amounts at a point in time. uses and reorders the information from a company’s balance sheet and income statement. The bottom line shows the net increase or decrease in cash for the period. Three Main Sections operating activities investing activities financing activities. BER,Ppt9.ppt

Cash Flow Statement Operating Activities Investing Activities Analyses a company’s cash flow from net income or losses. Adjusts net income for any non-cash items (e.g. adding back depreciation expenses) and adjusts for any cash that was used or provided by other operating assets and liabilities. Investing Activities Shows the cash flow from all investing activities, which generally include purchases or sales of long-term assets, such as property, plant and equipment, as well as investment securities. Financing Activities Shows the cash flow from all financing activities. Typical sources of cash flow include cash raised by selling stocks and bonds or borrowing from banks. Likewise, paying back a bank loan would show up as a use of cash flow. BER,Ppt9.ppt www.investopedia.com/articles/04/033104.asp

Read the Text Explanation of a company’s financial performance in the quarterly or annual report: Notes to the Financial Statement” or MD&A, or “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (American) Company management provides its views: Management’s opportunity communicate to investors and interested parties: what the financial statements show and do not show; important trends and risks. Notes provide investors with information that the company’s management believes to be necessary to an understanding of its financial condition e.g. changes in financial condition and results of operations. It is intended to: help investors to see the company through the eyes of management; provide context for the financial statements and information about the company’s earnings and cash flows. BER,Ppt9.ppt

Read the Text Check all the information you can find. As journalists, you have to look carefully at all the information that there is and make deductions based on what you find. The notes to financial statements have lots of really useful information that you can use. Here are some of the highlights: Significant accounting policies and practices Income taxes Superannuation plans and other pension programs Stock options BER,Ppt9.ppt www.thelawnmowers.co.uk/company/info.php

Summary – the WHOLE story Key Financial Statements Balance Sheets Income Statements Cash Flows BER,Ppt9.ppt

Coming Up! In-depth analysis of financial performance Scrutinise some data to determine the overall viability of a company. This will involve: Analysing returns (return on Assets, Return on Equity) Analysing working capital Analysing ratios (return on investment, current ratio) Understanding capital expenditure BER,Ppt9.ppt

Stretching a point. Turning the figures on their heads is not an accurate way of measuring growth… Quentin Blake BER,Ppt9.ppt www.britishland.com/.../content/sitemap.htm