Financial ratios
FINANCIAL STATEMENTS
Accrual-based approach – revenues are recorded at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash
Cash flow approach – used by financial professionals to focus attention on current and prospective inflows and outflows of cash
1. Balance sheet
a. Assets
Cash and Cash Equivalents
Marketable securities
Accounts receivable
Inventories
Net property, plant and equipment
Intangible assets
b. Liabilities
Accounts payable
Notes payable
Accrued expenses
Deferred taxes – reflects the difference between the taxes and the tax liabilities
Long-term debt – debt that matures more than one year in the future
c. Stockholders’ equity
Preferred stock – form of ownership that has preference over common stock when the firm distributes income and assets
Common stock – most basic form of corporate ownership
Par value – arbitrary value assigned to common stock on a firm’s balance sheet
Paid-in capital in excess of par – number of shares outstanding multiplies by the original selling price of the shares, net of the par value
Retained earnings – cumulative total of the earnings that a firm has reinvested since its inception
Treasury stock – common shares that were issued and later reacquired by the firm
2. Income statement
Common-size income statement – income statement which all entries are expressed as a percentage of sales
Earnings available for common stockholders – net income net of preferred stock dividends
Earnings per share (EPS) – earnings available for common stockholders dividend by the number of common stock outstanding
Dividends per share (DPS) – portion of the earnings per share paid to stockholders
3. Statement of Retained Earnings
4. Statement of Cash Flows
5. Notes to Financial Statements
CASH FLOW ANALYSIS
1. Operating flows – cash inflows and outflows directly related to the production and sale of a firm’s products or services
2. Investment flows –
Accrual-based approach – revenues are recorded at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash
Cash flow approach – used by financial professionals to focus attention on current and prospective inflows and outflows of cash
1. Balance sheet
a. Assets
Cash and Cash Equivalents
Marketable securities
Accounts receivable
Inventories
Net property, plant and equipment
Intangible assets
b. Liabilities
Accounts payable
Notes payable
Accrued expenses
Deferred taxes – reflects the difference between the taxes and the tax liabilities
Long-term debt – debt that matures more than one year in the future
c. Stockholders’ equity
Preferred stock – form of ownership that has preference over common stock when the firm distributes income and assets
Common stock – most basic form of corporate ownership
Par value – arbitrary value assigned to common stock on a firm’s balance sheet
Paid-in capital in excess of par – number of shares outstanding multiplies by the original selling price of the shares, net of the par value
Retained earnings – cumulative total of the earnings that a firm has reinvested since its inception
Treasury stock – common shares that were issued and later reacquired by the firm
2. Income statement
Common-size income statement – income statement which all entries are expressed as a percentage of sales
Earnings available for common stockholders – net income net of preferred stock dividends
Earnings per share (EPS) – earnings available for common stockholders dividend by the number of common stock outstanding
Dividends per share (DPS) – portion of the earnings per share paid to stockholders
3. Statement of Retained Earnings
4. Statement of Cash Flows
5. Notes to Financial Statements
CASH FLOW ANALYSIS
1. Operating flows – cash inflows and outflows directly related to the production and sale of a firm’s products or services
2. Investment flows –