Bài giảng môn học Quản trị kinh doanh - Chapter sixteen: How to read, analyze, and interpret financial reports

HOW TO READ, ANALYZE, AND INTERPRET FINANCIAL REPORTSChapter SixteenCopyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinExplain the purpose and the key items on the balance sheet.Explain and complete vertical and horizontal analysis.LU16-1: Balance Sheet -- Report as of a Particular DateLearning unit objectivesLU 16-1: Income Statement -- Report for a Specific Period of TimeExplain the purpose and the key items on the income statement.Explain and complete vertical and horizontal analysis.LU 16-3: Trend and Ratio AnalysisExplain and complete a trend analysis.List, explain, and calculate key financial ratios.Accounting EquationAccounting Equation: Assets = Liabilities + Owner’s EquityBalance SheetGives a financial picture of what a company is worth as of a particular date.AssetsLiabilities + Owner’s Equity= (How much the company owns)(How much the owner is worth)(How much the company owes)Elements of the Balance Sheet(Figure 16.1)MOOL COMPANYBalance SheetDecember 31, 2014 Assets Liabilitiesa. Current assets: a. Current liabilities:b. Cash $ 7,000 b. Accounts payable $ 80,000c. Accounts receivable 9,000 c. Salaries payable 12,000d. Merchandise inventory 30,000 d. Total current liabilities $ 92,000e. Prepaid expenses 15,000 e. Long-term liabilities:f. Total current assets $61,000 f. Mortgage note payable 58,000g. Plant and equipment: g. Total liabilities $150,000h. Building (net) $60,000i. Land 84,000 Stockholders’ Equityj. Total plant and equipment 144,000 a. Common stock $ 20,000 b. Retained earnings 35,000 c. Total stockholders’ equity 55,000k. Total assets $205,000 d. Total liab. and stkhlds’ equity $205,000Assets broken down into current assets and plant and equipmentLiabilities broken down into current and long-termTotal of current assets and plant and equipment.(Total is double-ruled)Total of all liabilities and stockholders’ equity.Preparing a Vertical Analysis of a Balance SheetStep 2. Round each liability and stockholders’ equity (the portions) as a percent of total liabilities and stockholders’ equity (the base). Round as indicated.Step 1. Divide each asset (the portion) as a percent of total assets (the base). Round as indicated.Comparative Balance Sheet: Vertical Analysis (Figure 16.2)ROGER COMPANYComparative Balance SheetDecember 31, 2013 and 2014 2013 2014 Amount Percent Amount Percent AssetsCurrent Assets: Cash $22,000 25.88 $18,000 22.22 Accounts Receivable 8,000 9.41 9,000 11.11 Merchandise inventory 9,000 10.59 7,000 8.64 Prepaid rent 4,000 4.71 5,000 6.71 Total current assets $43,000 50.59 $39,000 48.15*Plant and equipment: Building (net) $18,000 21.19 $18,000 22.22 Land 24,000 28.24 24,000 29.63 Total plant and equipment $42,000 49.41* $42,000 51.85Total assets $85,000 100.00 $81,000 100.00* Due to roundingComparative Balance Sheet: Vertical Analysis (Figure 16.2)ROGER COMPANYComparative Balance SheetDecember 31, 2013 and 2014 2013 2014 Amount Percent Amount Percent LiabilitiesCurrent liabilities: Accounts payable $14,000 16.47 $8,000 9.88 Salaries payable 18,000 21.18 17,000 20.99 Total current liabilities $32,000 37.65 $25,000 30.86*Long-term liabilities: Mortgage note payable $12,000 14.12 $20,000 24.69 Total liabilities $44,000 51.76* $25,000 30.86* Stockholders’ EquityCommon stock $20,000 23.53 $20,000 24.69Retained earnings 21,000 24.71 16,000 19.75 Total stockholders’ equity $41,000 48.24 $36,000 44.44Total liabilities and stockholders’ equity $85,000 100.00 $81,000 100.00* Due to roundingPreparing a Horizontal Analysis of a Comparative Balance SheetStep 1. Calculate the increase or decrease (portion) in each item from the base year.Step 2. Divide the increase or decrease in Step 1 by the old or base year.Step 3. Round as indicated.Comparative Balance Sheet: Horizontal Analysis (Figure 16.3)ABBY ELLEN COMPANYComparative Balance SheetDecember 31, 2013 and 2014 Increase (decrease) 2013 2014 Amount Percent AssetsCurrent Assets: Cash $ 6,000 $ 4,000 $ 2,000 50.00 Accounts receivable 5,000 6,000 (1,000) -16.67 Merchandise inventory 9,000 4,000 5,000 125.00 Prepaid rent 5,000 7,000 (2,000) -28.57 Total current assets $25,000 $21,000 $ 4,000 19.05Plant and equipment: Building (net) $12,000 $12,000 0 0 Land 18,000 18,000 0 0 Total plant and equipment $30,000 $30,000 0 0Total assets $55,000 $51,000 $4,000 7.84Comparative Balance Sheet: Horizontal Analysis (Figure 16.3)ABBY ELLEN COMPANYComparative Balance SheetDecember 31, 2013 and 2014 Increase (decrease) 2013 2014 Amount Percent LiabilitiesCurrent liabilities: Accounts payable $ 3,200 $ 1,800 $ 1,400 77.78 Salaries payable 2,900 3,200 (300) -9.38 Total current liabilities $ 6,100 5,000 1,100 22.00Long-term liabilities: Mortgage note payable 17,000 15,000 2,000 13.33 Total liabilities $ 23,100 20,000 3,100 15.50 Owner’s EquityAbby Ellen, capital $31,900 31,000 $ 900 2.90 Total liabilities and owner’s equity $55,000 51,000 $4,000 7.84Income StatementIncome Statement - A financial report that tells how well a company is performing (its profitability or net profit) during a specific period of time.Service Business: Revenues -- Operating expenses = Net incomeRetail Business: Revenues (sales)-- Cost of merchandise sold= Gross profit from sales-- Operating expenses= Net income (profit)Income Statement$MOOL COMPANYIncome Statement For Month Ended December 31, 2014 Revenues a. Gross Sales $22,080b. Less: Sales returns and allowances $ 1,082c. Sales discounts 432 1,514d. Net Sales Cost of merchandise (goods) sold: $20,566a. Merchandise Inventory 12/1/2014 1,248b. Purchases 10,512c. Less: Purchases returns and allowances $336 d. Less: Purchase discounts 204 540e. Cost of net purchases 9,972f. Cost of merchandise (goods available for sale) 11,220g. Less: Merchandise inventory 12/31/2014 1,600h. Cost of merchandise (goods sold) 9,620 Gross profit from sales 10,946 Operating expenses: a. Salary 2,200b. Insurance 1.300c. Utilities 400d. Plumbing 120e. Rent 410f. Depreciation 200g. Total operating expenses 4,630 Net income $ 6,316Income Statement(Figure 16.4)Key Calculations on Income StatementNet sales = Gross sales -- Sales returns allowances -- Sales discountsNet income = Gross profit -- Operating expenses Gross profit from sales = Net sales -- Cost of merchandise (goods) soldCost of Net purchasesmerchandise = Beginning + (purchase less -- Ending(goods) sold inventory returns & discounts) inventoryIncome Statement Vertical Analysis (Figure 16.5)ROYAL COMPANYComparative Income StatementFor Years Ended December 31, 2013 and 2014 2014 Percent 2013 Percent of net of netNet Sales $45,000 100.00 $29,000 100.00Cost of merchandise sold 19,000 42.22 12,000 41.38Gross profit from sales $26,000 57.78 $17,000 58.62Operating expenses: Depreciation $1,000 2.22 $ 500 1.72 Selling and Advertising 4,200 9.33 1,600 5.52 Research 2,900 6.44 2,000 6.90 Miscellaneous 500 1.11 200 .69 Total operating expenses $8,600 19.11* $ 4,300 14.83Income before interest and taxes $17,400 38.67 $12,700 43.79Interest expense 6,000 13.33 3,000 10.34Income before taxes $11,400 25.33* $ 9,700 33.45Provision for taxes 5,500 12.22 3,000 10.34Net income $ 5,900 13.11 $ 6,700 23.10** Due to roundingFLINT COMPANYComparative Income StatementFor Years Ended December 31, 2013 and 2014 2014 2013 Increase (decrease) Amount PercentSale $ 90,000 $80,000 $10,000 Sales returns and allowances 2,000 2,000 0Net Sales $88,000 $78,000 $10,000 + 12.82Cost of merchandise sold 45,000 40,000 5,000 + 12.50Gross profit from sales $43,000 $38,000 $ 5,000 + 13.16Operating expenses: Depreciation $ 6,000 $ 5,000 $ 1,000 + 20.00 Selling and Advertising 16,000 12,000 4,000 + 33.33 Research 600 1,000 (400) - 40.00 Miscellaneous 1,200 500 700 + 140.00 Total operating expenses $23,800 $18,500 $ 5,300 + 28.65Income before interest and taxes $19,200 $19,500 $ (300) - 1.54Interest expense 4,000 4,000 0 Income before taxes $15,200 $15,500 $ (300) - 1.94Provision for taxes 3,800 4,000 (200) - 5.00Net income $11,400 $11,500 $ (100) - .87Horizontal Analysis Income Statement (Figure 16.6)Completing a Trend AnalysisTrend Analysis – Analyzes the changes that occur by expressing each number as a percent of the base year. Step 1. Select the base year (100%).Step 2. Express each amount as a percent of the base year amount (rounded to the nearest whole percent).Each ItemBase AmountTrend Analysis Given (base year 2012) 2015 2014 2013 2012Sales $621,000 $460,000 $340,000 $420,000Gross Profit 182,000 141,000 112,000 124,000Net Income 48,000 41,000 22,000 38,000 Trend Analysis 2015 2014 2013 2012Sales* 148% 110% 81% 100%Gross Profit 147 114 90 100Net Income 126 108 58 100$340,000$420,000* Round to nearest whole percent