1. 1 Understanding the Financial Statements Lecture No.35 Professor C. S. Park Fundamentals of Engineering Economics Copyright © 2005

2. 2 Chapter 13 Understanding Financial Statements  Accounting: The Basis of Decision- Making  Financial Statements: Financial Status for Businesses  Financial Ratios: Using Ratios to Make Business Decisions

3. 3 Financial Status for Business

4. 4 The Balance Sheet

5. 5

6. 6 D. Understanding the Statement of Cash Flows

7. 7 1. The business operating cycle: How a business earns its cash 2. Sources and Uses of Cash 3. The engineer’s focus on the investing section: Capital Budgeting

8. 8 Shareholders Fixed Assets Debt holders Inventory Government Customers CASH From cash sales To pay taxes From credit sales To pay labor, materials, and overhead To pay interest and principal From sale of debt To purchase From sale To pay dividend, To purchase back shares From sale of shares

9. 9 The Cash Flow – Business Cycle Inventory Production Cash Accounts receivable Fixed assets Cash Sales Credit Sales Collection of receivable Investment Depreciation Changes in equity Changes in liabilities Pay taxes Pay interest Pay dividends Labor Materials Overhead

10. 10

11. 11 Using Financial Ratios