Академический Документы
Профессиональный Документы
Культура Документы
Management Preparation CFO, CEO, Accounting Staff Guided by GAAP (IFRS) Independent Auditors Verification Partners, Managers, Staff Guided by GAAS (ISA) Information Intermediaries Analysis and Advice Financial analysis, Information services Government Regulators Verification
IFAC
Auditing Standards
IASB
Accounting Standards
Stock Exchanges
Corporate Governance Standards
Management
Primary Responsibility CFO, CEO, Accounting staff
Auditors (CPAs)
Users Analysis and Decision Investors, Lenders, etc.
Directors
Oversight Audit Committee (Independent directors)
The full-disclosure principles require . . . 1. Relevance: Timely and Predictive and Feedback Value A complete set of financial statements, and Reliability: Accurate, Unbiased, and Verifiable 2.Notes to the financial statements
Secondary Qualitative Characteristics Comparability: Across businesses Consistency: Over time
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Users Analysis and Decision Institutional and private investors, Lenders, Suppliers, Customers, etc.
Primary Qualitative Characteristics Relevance: Timely and Predictive Feedback Value Reliability: Accurate, Unbiased, and Verifiable
Annual Reports
Annual Reports
For privately held companies, annual reports are simple documents that include:
1. Four basic financial statements. 2. Related notes (footnotes). 3. Report of independent accountants (auditors
For public companies, annual reports are elaborate due to reporting requirements:
1. A Nonfinancial Section
A letter to the stockholders, a description of managements philosophy, products, successes, etc. See next slide for a detailed listing . . .
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2. A Financial Section
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Annual Reports
1. Summarized financial data for a number of years. 2. Management Discussion and Analysis (MD&A). 3. The four basic financial statements. 4. Notes (footnotes). 5. Independent Accountants Report and the Management Certification.
Quarterly Reports
Usually begin with short letter to stockholders Condensed unaudited (but reviewed) income statement and balance sheet for the quarter. Often, cash flow statement and statement of stockholders equity are omitted. Some notes to the financial statements also may be omitted.
6. Recent stock price information. 7. Summaries of the unaudited quarterly financial data. 8. Lists of directors and officers of the company and relevant addresses.
ASSETS Current assets: Cash and cash equivalents Accounts receivable, net Inventories, net Other current assets Total current assets Property, plant and equipment, net Intangible assets, net Other assets
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12
2006
2005
LIABILITIES & STOCKHOLDERS" EQUITY Current Liabilities: Accounts payable and accrued expenses $ Notes payable, current portion Total current liabilities Long-term liabilities: Other liabilities Minority interest Commitment and contingencies (Note13) 143,455 $ 80,000 223,455 43,388 1,987 140,184 21 140,205 28,245
SHAREHOLDERS' EQUITY Shareholders' equity: Common stock, $.01 par value, 85,096,782 and 84,950,694 issued and outstanding at December 31, 2006 and 2005, respectively Additional paid-in capital Retained earnings Total shareholders' equity Total liabilities and shareholders' equity
$ 845,947 $ 764,498
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Net sales Cost of goods sold Gross profit Operating expenses Income from operations Nonoperating revenues/expenses and gains/losses Income before income taxes Income tax expense Net income
EPS =
66,000 3,800 69,800 36,000 16,000 8,100 2,500 62,600 7,200 1,000 (60) 3,000 11,140 3,899 7,241 0.40
94.56% 5.44% 100.00% 51.58% 22.92% 11.60% 3.58% 89.68% 10.32% 1.43% -0.09% 4.30% 15.96% 5.59% 10.37%
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32,274 14,035
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Descriptions of the key accounting rules that apply to the companys statements. Additional detail supporting reported numbers. Relevant financial information not disclosed on the statements.
ROE measures how much the firm earned for each dollar of stockholders investment.
1(beginning
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Financial Leverage
Rely on R&D and product promotion to convince customers of the superiority of your product.
High-value or product-differentiation.
Rely on efficient management of accounts receivable, inventory and productive assets to produce high asset turnover.
Low-Cost.
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Extraordinary Items
Unusual
Income or loss on segments operation for the period. Gain or loss on disposal of the segment.
Infrequent
Industry Factors
Economy-wide Factors
Invest? No Yes
Business Strategy
Investors
MANAGEMENT
Time series analysis . . . uses accounting data to make product pricing and expansion decisions. . . . use accounting data for investment, credit, tax, and public policy decisions.
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Comparison with similar companies Provides insights concerning a companys relative performance.
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Component Percentages Express each item on a particular statement as a percentage of a single base amount.
Net sales on the income statement Total assets on the balance sheet
The comparative income statements of Home Depot for 2007 and 2006 appear on the next slide. Prepare component percentage income statements where net sales equal 100%.
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HOME DEPOT Comparative Income Statements (Condensed) Amounts in Millions Except Per Share Data 2007 Percent 2006 Percent Net Sales $ 90,837 100.0% $ 81,511 100.0% Cost of Merchandise Sold 61,054 67.2% 54,191 66.5% Gross Profit 29,783 27,320 Operating Expenses 20,110 17,957 Operating Income 9,673 9,363 Interest and Investment Income 27 62 Interest Expense (392) (143) 2007 Cost 2007 Sales Earnings Before Income Taxes 9,308 9,282 Income Taxes 3,547 3,444 Net Earnings $ 5,761 $ 5,838 Basic Earnings Per Share $ 2.80 $ 2.73 Weighted-Average Number of Common Shares Outstanding 2,062 2,147 Diluted Earnings Per Share $ 2.79 $ 2.72
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HOME DEPOT Comparative Income Statements (Condensed) Amounts in Millions Except Per Share Data 2007 Percent 2006 Percent Net Sales $ 90,837 100.0% $ 81,511 100.0% Cost of Merchandise Sold 61,054 67.2% 54,191 66.5% Gross Profit 29,783 32.8% 27,320 33.5% Operating Expenses 20,110 22.1% 17,957 22.0% Operating Income 9,673 10.6% 9,363 11.5% Interest and Investment Income 27 0.0% 62 0.1% Interest Expense (392) -0.4% (143) -0.2% Earnings Before Income Taxes 9,308 10.2% 9,282 11.4% Income Taxes 3,547 3.9% 3,444 4.2% Net Earnings $ 5,761 6.3% $ 5,838 7.2% Basic Earnings Per Share $ 2.80 $ 2.73 Weighted-Average Number of Common Shares Outstanding 2,062 2,147 Diluted Earnings Per Share $ 2.79 $ 2.72
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Commonly Used Ratios The 2007 and 2006 balance sheets for Home Depot are presented next. We will be referring to these financial statements throughout the ratio analyses.
2007 Assets Cash and Cash Equivalents Short-Term Investments Receivables, net Merchandise Inventories Other Current Assets Total Current Assets Property and Equipment, at cost Less Accumulated Depreciation Net Property and Equipment Other Assets Total Assets
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2006
2007 Liabilities Current Liabilities Noncurrent Liabilities Total Liabilities Stockholders' Equity Common Stock, $.05 par Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Total Less: Treasury Stock Total Stockholders' Equity Total Liabilities & Stockholders' Equity
2006
Home Depot
600 $ 793 14 14 3,223 2,396 12,822 11,401 1,341 665 18,000 15,269 34,358 31,530 7,753 6,629 26,605 24,901 7,658 4,235 $ 52,263 $ 44,405
$ 12,931 $ 12,706 14,302 4,790 27,233 17,496 121 7,930 33,052 310 41,413 (16,383) 25,030 $ 52,263 $ 120 7,149 28,943 409 36,621 (9,712) 26,909 44,405
Continued
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9.7%
22.2% 12.5%
Return on Equity =
$5,761
($25,030 + $26,909) 2
= 22.2%
This measure indicates how much income was earned for every dollar invested by the owners.
Financial leverage is the advantage or disadvantage that occurs as the result of earning a return on equity that is different from the return on assets.
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Cash Flow from Operating Activities Net Income Add: Depreciation and Amortization Decrease in Receivables, net Increase in Accounts Payable Increase in Deferred Income Taxes Stock-based Compensation Expense Other Deduct: Increase in Deferred Revenue Increase in Merchandise Inventories Decrease in Income Taxes Payable Decrease in Other Current Assets Decrease in Other Long-term Liabilities Cash Flow from Operating Activities
*If there are preferred dividends, the amount is subtracted from net income.
EPS =
= $2.81
Quality = of Income
$7,661 $5,761
= 1.33
Average number of shares based on the number of shares at the beginning and end of the year. Earnings per share is probably the single most widely watched financial ratio.
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= 6.3%
0.05 to 1
This ratio tells us the percentage of each sales dollar that is income.
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This ratio measures a companys ability to generate sales given an investment in fixed assets.
0.40 to 1
600 3,223 14 $ 3,837
This ratio measures the ability of the company to pay current debts as they become due.
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Cash & Cash Equivalents Receivables, net Short-term Investments Quick Assets
This ratio is like the current ratio but measures the companys immediate ability to pay debts.
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This ratio measures how quickly a company collects its accounts receivable.
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365 32.3
= 11.3 Days
Inventory Turnover
73 Days
This ratio measures the average number of days it takes to collect receivables.
This ratio measures how quickly the company sells its inventory.
This ratio measures the average number of days it takes to sell the inventory.
56 57
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= 9.1 Times
This ratio measures how quickly the company pays its accounts payable.
= 24.7 Times
This ratio measures the average number of days it takes to pay its suppliers.
44.0
1.09
This ratio compares the cash generated with the cash obligations of the period.
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This ratio measures the amount of liabilities that exists for each $1 invested by the owners.
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Interpreting Ratios Ratios may be interpreted by comparison with ratios of other companies or with industry average ratios. Ratios may vary because of the companys industry characteristics, nature of operations, size, and accounting policies.
2%
P/E Ratio
12.1
Home Depot paid dividends of $.675 per share when the market price was $34 per share. This ratio is often used to compare the dividend-paying performance of different investment alternatives.
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This ratio measures the relationship between the current market price of the stock and its earnings per share.
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A securities market in which prices fully reflect available information is called an efficient market.
In an efficient market, a companys stock reacts quickly when new, relevant information is released about the company.
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