Financial Statement Framework

Financial Performance &

Financial Statements
Professor Doug Cerf
Donald Bren Graduate School of
Environmental Science and Management
Corporate Environmental Management (ESM 281)
Spring 2010

 Financial Statement Framework is

a primary channel for
communicating information about
the economics of a business

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Objectives
Goal: Obtain the tools to evaluate the financial
performance of a business, project or division
Use financial statements to understand financial
performance.
the main point is the ability to understand how to evaluate and
communicate financial performance.
It is not the preparation of the statements

applies to a continuum of entities

division of a company
start up company
partnership
corporation

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Lecture on the financial statement framework

Evaluate Wal-Mart. (WMT) financial performance on
Google Finance
Financial Statement Framework (the big picture)
Statement of Financial Position (Balance Sheet)
Company assets and claims to those assets
At a point in time

Statement of Operations (Income Statement)

Revenue less expenses (costs necessary to generate revenue)
For a period of time

Statement of Cash Flows

Inflows and outflows of cash related to the operating, financing and
investing activities of the entity
For a period of time

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Maria Hernandez Case

Understand the financial condition of a
start-up enterprise.

Has Maria made a profit? Does it matter?

Why has the cash level declined significantly?
Should Maria be worried?
What are the risks?

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Analyze financial condition

Two phases
Phase #1 Prior to beginning of operations
Prior to July 1, 2004
Go through the transactions prior to July1 to prove
balance sheet shown on page 1 of case.
Prepare a Statement of Cash Flows

Phase #2 First two months of operation

July 1, 2004 through August 31, 2004
Prepare all three statements
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Prior to start of operations

As a class
prove balance sheet
prepare statement of cash flows

She raised $50,000 and has $12,000 left and she

has not started her business
What does she have to show for it?
Can you see the distribution of her assets and who
has claim to them?
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Financial condition at the end of two

months of operations
Prepare the financial condition for the first
two months of operations 7/1/04 8/31/04
Transaction by transaction
Students work on this in groups for 15 minutes
if necessary
Entire class prepare statements on the board

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How is Maria doing?

Maria had services rendered of $47,000
Maria received a salary
Interpretation of profit is different if owners do not receive a salary.

From operation of the business:

Assets have increased by about 10,300.
Liabilities have increased by 5,700.
Profit $4,600

Why has the cash level declined significantly?

Started at $50,000 and now is $6,600 2+ months later

Should Maria be worried?

What are the risks?
Solvency-Can she pay salaries next month?
Can she borrow money?
Collection risk (from customers)

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