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FINANCIAL STATEMENT ANALYSIS, Lecture notes of Accounting

Glasgow School of Art (GSA)Accounting

External Reporting and Analysis Financial Statement Analysis

Typology: Lecture notes

2024/2025

Available from 02/08/2025

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FINANCIAL STATEMENT ANALYSIS
Balance Sheet✔ ✔provides a snapshot of a company's financial position as of a
certain date
Assets✔ ✔items of value such as inventory and equipment are financed with
liabilities(debt) or stockholders' equity(owners' shares)
Assets= liabilities + stockholders' equity
Income Statement✔ ✔reports the company's profitability during an accounting
period
Revenues✔ ✔amounts recieved from customers for products sold or services
provided
Expenses✔ ✔costs incurred to produce revenues
Net Income✔ ✔Revenues-Expenses
Statement of Stockholders equity✔ ✔reports if the earnings of this accounting
period are distributed as dividends or retained in the business as retained earnings.
Also reports amounts paid by stockholders to purchase common stock and
preferred stock
Retained earnings(ending)✔ ✔Retained earnings + Net Income - (Dividends)
Contributed capital (ending)✔ ✔Contributed capital, beginning + issuance of
shares - (Repurchase to retire shares)
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FINANCIAL STATEMENT ANALYSIS

Balance Sheet✔ ✔provides a snapshot of a company's financial position as of a certain date Assets✔ ✔items of value such as inventory and equipment are financed with liabilities(debt) or stockholders' equity(owners' shares) Assets= liabilities + stockholders' equity Income Statement✔ ✔reports the company's profitability during an accounting period Revenues✔ ✔amounts recieved from customers for products sold or services provided Expenses✔ ✔costs incurred to produce revenues Net Income✔ ✔Revenues-Expenses Statement of Stockholders equity✔ ✔reports if the earnings of this accounting period are distributed as dividends or retained in the business as retained earnings. Also reports amounts paid by stockholders to purchase common stock and preferred stock Retained earnings(ending)✔ ✔Retained earnings + Net Income - (Dividends) Contributed capital (ending)✔ ✔Contributed capital, beginning + issuance of shares - (Repurchase to retire shares)

Statement of cash flows✔ ✔reports cash inflows + cash outflows during an accounting period Accounts recievable✔ ✔amounts to be recieved in the future from customers Accounts Payable✔ ✔amounts that the corporation must pay to suppliers in the future Stockholders' Equity✔ ✔portion of assets the owners are free and clear of any liabilities Contributed Capital✔ ✔amounts paid by stockholders to purchase common stock and preferred stock Retained Earnings✔ ✔Net income earned by the company since its incorporation and not yet distributed as dividends Cost of Goods Sold✔ ✔largest expense item which reports the wholesale costs of inventory sold during the accounting period Operating activities✔ ✔relate to a company's main business: selling products or services to earn net income Investing activities✔ ✔relate to the need for investing in property, plant, and equipment or expanding by making investments in other companies Financing activities✔ ✔relate to how a company finances its assets with debt or stockholders' equity GAAP✔ ✔rules that management must follow when preparing financial statements available to investors

Return on Asset✔ ✔Net Income/ total assets reveals how efficiently assets are used to generate profit Trend index✔ ✔Current amount/base year amount x 100 measures the percentage of change from the base year and indicates growth trends for a company common size income statement✔ ✔compares all amounts within one year to revenue of that same year Common-size balance sheet✔ ✔compares all amounts within on year to total assets of that same year Liquidity✔ ✔a company's ability to pay liabilities as they come due in the next year solvency✔ ✔a company's ability to pay liabilities for many years into the future Current assets✔ ✔expected to be converted into cash, sold, or consumed within the next 12 months noncurrent assets✔ ✔all assets not listed as current current liabilites✔ ✔are liabilities due within 12 months Noncurrent liabilities✔ ✔due after 12 months Cash and Cash equivalents✔ ✔actual currency, bank accounts, and investments that can be liquidated immediately

Recievables✔ ✔Monies to be recieved by the company from customers inventories✔ ✔Merchandise held for sale to customers Television costs✔ ✔cost of television programs that will be aired during the next year Depreciation Expense✔ ✔cost allocated to each year of the assets life Accumulated Depreciation✔ ✔total amount of depreciation expensed since the assets' date of purchase Intangible assets✔ ✔patents, trademarks, and copyrights that have value but not any physical presence goodwill✔ ✔extra value that is recorded when buying another company Debtor✔ ✔borrowing corporation records bonds payable creditor✔ ✔entity loaning the money records a bond recievable Stockholders✔ ✔entities owning shares of stock are the owners of the corporation current ratio✔ ✔Current assets/current liabilites measure short term liquidity and the ability to pay current liabilities as they come due Sales✔ ✔refer to revenues from the sale of merchandise

Extraordinary items✔ ✔highly unusual transactions that are considered unusual in nature and infrequent in occurence Productivity✔ ✔measures how efficiently you can generate desired outputs from given inputs Gross Profit Margin✔ ✔Gross profit/Sales revenue compares gross profit to revenue expressing gross profit as a percentage of net revenue Publicly traded✔ ✔shares are bought and sold on stock exchanges such as the New york stock exchange Initial Public Offering (IPO)✔ ✔when a company sells stock to the public for the first time as a publicly traded corporation Treasury stock✔ ✔stock bought back from investors not recorded as an asset because it is impossible for a company to own itself Shares Outstanding✔ ✔the total number of shares actually held by investors at a given time =Shares issued-treasury shares Par value✔ ✔a legal value assigned to each share of stock preferred stock✔ ✔carries a dividend rate which must be paid to preferred stockholders before any dividends can be paid to common stockholders Accumulated other comprehensive income✔ ✔recorded in stockholders equity 1. unrealized gains/losses on certain securities 2. Foreign currency translation adjustments 3. Certain gains/losses on pension plans

Stock splits✔ ✔proportional increases in the number of shares outstanding Stock dividends✔ ✔smaller proportional increases in the number of shares outstanding Return on Equity✔ ✔Net Income/ Stockholders Equity measures how effectively stockholders' equity is used to produce net income Return on Common Equity✔ ✔Net Income-Preferred Dividends/Common Stockholders equity To analyze stock performance Financial Leverage✔ ✔total assets/Stockholders equity Explains the difference between return on assets and return on equity. A high debt ratio and the high financial risk can boost profits Times Interest Earned Ration✔ ✔Operating Income/Interest Expense compares the amount of income available to make interest payments to interest payment requirements Earnings per share✔ ✔Net Income-Preferred dividends/Average number of common shares outstanding Amount of net income earned by each individual share of stock held by investors Market value per share✔ ✔Stock market trading price of the company's common stock Basic earnings per share✔ ✔companies divide net income by the actual average number of common shares outstanding