module 1 Flashcards
Four Types of Business Activities
▪ Plan business activities
▪ Finance those activities
▪ Invest in those activities
▪ Then engage in Operating activities
investing activities
companies acquire land,
buildings and equipment, grow the business with
new products and services, or acquire other
companies to expand into new markets.
financing activities
companies raise cash to fund the operating and investing activities. This includes
selling stock to equity investors and borrowing from banks and other lenders.
operating activities
companies hire and train
employees, manufacture products, deliver services,
market and sell their products and services, and
manage after-sale customer support.
Form 10-K
the audited Annual Report
▪ Four financial statements
▪ Explanatory notes
▪ Management’s discussion and analysis (MD&A)
Form 10-Q
the unaudited Quarterly Report
▪ Summary versions of the four financial statements
▪ Limited additional disclosures
Benefits of Disclosure
The benefits of supplying accounting information
extend to a company’s capital, labor, input, and output
markets.
▪ Cost of capital
▪ Recruiting efforts in labor markets, and
▪ the ability to establish superior Supplier-customer relations in the input and output markets
Costs of Disclosure
1. Preparation and dissemination of financial information 2.Competitive disadvantages – revealing proprietary information 3. Litigation potential 4. Political costs
SEC’s Regulation Fair Disclosure
Goal is to curb the practice of selective
disclosure by public companies.
Balance Sheet
Reports a company’s financial position at a point in time:
▪ Resources (assets): what the company owns
▪ Sources: where the assets are financed
▪ NONOWNER (liabilities) financing from banks, creditors and suppliers
▪ OWNER (equity) financing from stockholders
Income Statement
Reports on a company’s performance over a period of time and lists: ▪ Top line Revenues (also called sales) ▪ Expenses Revenues – Expenses = Net Income Net income – also known as ▪ Earnings ▪ Net earnings ▪ Profit ▪ Bottom line
gross profit =
= Revenues – Cost of goods sold
SG&A
the overhead of the company, including ▪ Salaries ▪ Marketing costs ▪ Occupancy costs ▪ HR and IT costs ▪ All the other operating expenses the company incurs.
Operating Income
The ability of companies to create barriers to
competitive pressure, by patent protection, or effective
marketing, etc. is a key factor in determining their level
of profitability.
net revenues - COGS - SG&A
Statement of Stockholders Equity
Reports on year-over-year changes in the equity
accounts that are reported on the balance
sheet
Contributed Capital
the stockholders’ net contributions to the company,
retained earnings
net income over the life of the company minus all dividends ever paid.
Statement of Cash Flows
Reports cash inflows and outflows from three types of activities: • Operating • Investing • Financing
The income and the balance sheet are linked via…
retianed earnings
statement of stockholder’s equity and balance
sheet both have
Retained earnings, contributed capital, and
other equity balances
Statement of cash flows is linked to the income
statement as
net earnings
GAAP allows companies choices in
in preparing financial statements. and financial statements comprise numerous estimants
SOX
Both the CEO and CFO have personally reviewed the annual
report.
▪ There are no untrue statements of a material fact that would
make the statements misleading.
▪ Financial statements fairly present in all material respects the
financial condition of the company.
▪ All material facts are disclosed to the company’s auditors and
board of directors.
▪ No changes to its system of internal controls are made unless
properly communicated.
Return on Assets
A company’s profitability must be assessed
with respect to the size of its investment
▪ Return on Asset (ROA) - defined as net income for
that period divided by the average total assets
during that period.
-profitability and productivity
