1. Copyright © 2009 Pearson Education Canada13-1 Chapter 13 Analyzing and Using FinancialInformation

2. Copyright © 2009 Pearson Education Canada13-2 What Is Accounting? Communication Measuring Interpreting FinancialaccountingFinancialaccountingManagementaccountingManagementaccounting Decision Making

3. Copyright © 2009 Pearson Education Canada13-3 What Accountants Do TaxaccountingTaxaccounting BookkeepingBookkeeping FinancialanalysisFinancialanalysis CostaccountingCostaccounting

4. Copyright © 2009 Pearson Education Canada13-4 Ten Most Important Accounting Skills Analytical Problem solving Interpersonal Listening Communication Leadership Decision making Time management Teamwork Computer

5. Copyright © 2009 Pearson Education Canada13-5 Types of Accountants Private or (Corporate) accountants work for a businesses other than a public accounting firm Public accountants, are independent of the clients they serve Most are employed by accounting firms Members of the firm are generally CA’s PrivatePublic

6. Copyright © 2009 Pearson Education Canada13-6 Types of Accountants Chartered Accountant (CA) Certified Management Accountant (CMA) Certified General Accountant (CGA)

7. Copyright © 2009 Pearson Education Canada13-7 Accounting Rules Generally Accepted Accounting Principles (GAAP) Financial Accounting Standards Board (FASB-U.S.A.) Canadian Institute of Chartered Accountants (CICA-Canada)

8. Copyright © 2009 Pearson Education Canada13-8 The Sarbanes-Oxley Act (US) Bill C-198 (Canada) Affects:  Loans to directors and executives  External auditors  Corporate lawyers and wrongdoing  Non-audit services by external auditors  Audit committee and board of director structure  Investment bankers and stock analysis  CEO and CFO accountability and financial statements  Internal financial controls and processes

9. Copyright © 2009 Pearson Education Canada13-9 Fundamental Accounting Concepts The accounting equation Double-entry bookkeeping The matching principle

10. Copyright © 2009 Pearson Education Canada13-10 The Accounting Equation Owner’s Equity: Accounting Equation: Assets = Liabilities + Owner’s Equity Assets – Liabilities = Owner’s Equity

11. Copyright © 2009 Pearson Education Canada13-11 Basic Accounting Concepts Double-entrybookkeepingDouble-entrybookkeepingMatchingprincipleMatchingprinciple CashbasisCashbasisAccrualbasisAccrualbasisCashpurchaseCashpurchaseCreditpurchaseCreditpurchase

12. Copyright © 2009 Pearson Education Canada13-12 How Are Financial Statements Used?

13. Copyright © 2009 Pearson Education Canada13-13 Understanding Financial Statements Balance sheet Income statement Cash-flow statement

14. Copyright © 2009 Pearson Education Canada13-14 The Balance Sheet Assets Liabilities and Shareholder’s Equity Current AssetsFixed Assets Current Liabilities Long-Term Liabilities Shareholder’s Equity

15. Copyright © 2009 Pearson Education Canada13-15

16. Copyright © 2009 Pearson Education Canada13-16 The Income Statement OperatingexpensesOperatingexpenses RevenuesRevenues Net income after taxes Net income after taxes Cost of goods sold Cost of goods sold

17. Copyright © 2009 Pearson Education Canada13-17

18. Copyright © 2009 Pearson Education Canada13-18 The Cash-flow Statement Operations Investments Financing

19. Copyright © 2009 Pearson Education Canada13-19

20. Copyright © 2009 Pearson Education Canada13-20 Analyzing Financial Statements Trend Analysis Ratio Analysis Consider more than one ratio Uncover business shifts Consider extraordinary circumstances Check specific data

21. Copyright © 2009 Pearson Education Canada13-21 Types of Financial Ratios ActivityLeverage ProfitabilityLiquidity

22. Copyright © 2009 Pearson Education Canada13-22 Profitability Ratios Return on Sales = Net Income Net Sales Return on Equity = Net Income Total Owner’s Equity Earnings per Share = Net Income Average Shares Outstanding

23. Copyright © 2009 Pearson Education Canada13-23 Liquidity Ratios Working Capital = Current Assets – Current Liabilities Current Ratio = Current Assets Current Liabilities Quick Ratio = Current Assets – Liabilities Current Liabilities

24. Copyright © 2009 Pearson Education Canada13-24 Activity Ratios Inventory Turnover = Cost of Goods Sold Average Inventory Receivables Turnover = Sales Average Accounts Receivable

25. Copyright © 2009 Pearson Education Canada13-25 Leverage Ratios Debt to Equity = Total Liabilities Total Equity Debt to Total Assets = Total Liabilities Total Assets

26. Copyright © 2009 Pearson Education Canada13-26 Financial Management Developing and implementing a financial plan Monitoring cash flow Developing a budget Amount of funds Sources of funds Uses of funds Cash Inventory Receivables and payables Financial control Capital investments Capital budgeting

27. Copyright © 2009 Pearson Education Canada13-27