Professional Documents
Culture Documents
McGraw-Hill/Irwin
1-1
1-2
1-3
Distinguishing Form from Content in Financial Statements Form is the way in which the statements and their components parts fit together. Content is the measurement of the line items that are reported within the component parts of financial statements. The form gives the overall story that the statements are telling.
1-4
2. Income Statement
3. Cash Flow Statement
1-5
February 1, 2002 ------------ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Other Total current assets Property, plant and equipment, net Investments Other non-current assets $ 3,641 273 2,269 278 1,416 -----7,877 826
February 2, 2001 ------------$ 4,910 525 2,424 400 1,467 -----9,726 996
Current liabilities: Accounts payable Accrued and other Total current liabilities Long-term debt Other Commitments and contingent liabilities (Note 7) Total liabilities Stockholders equity: Preferred stock and capital in excess of $.01 par value; shares issued and outstanding: none Common stock and capital in excess of $.01 par value; shares authorized: 7,000; shares issued: 2,654 and 2,601, respectively Treasury stock, at cost; 52 shares and no shares, respectively Retained earnings Other comprehensive income Other Total stockholders equity
5,605
4,795
1-6
1-7
Net revenue Cost of revenue Gross margin Operating expenses: Selling, general and administrative Research, development and engineering Special charges Total operating expenses Operating income Investment and other income (loss), net Income before income taxes and cumulative effect of change in accounting principle Provision for income taxes Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net Net income Earnings per common share: Before cumulative effect of change in accounting principle: Basic Diluted After cumulative effect of change in accounting principle: Basic Diluted Weighted average shares outstanding: Basic Diluted
Fiscal Year Ended ------------------------------------------February 1, February 2, January 28, 2002 2001 2000 ----------------------------------$ 31,168 $ 31,888 $ 25,265 25,661 25,445 20,047 ---------------5,507 6,443 5,218 ---------------2,784 452 482 -----3,718 -----1,789 (58) -----1,731 485 -----1,246 $ -----1,246 -----$ 3,193 482 105 -----3,780 -----2,663 531 -----3,194 958 -----2,236 59 -----2,177 -----$ 2,387 374 194 -----2,955 -----2,263 188 -----2,451 785 -----1,666 -----1,666 ------
1-8
1-9
Fiscal Year Ended ------------------------------------------February 1, February 2, January 28, 2002 2001 2000 ----------------------------------Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Tax benefits of employee stock plans Special charges (Gains)/losses on investments Other Changes in: Operating working capital Non-current assets and liabilities Net cash provided by operating activities Cash flows from investing activities: Investments: Purchases Maturities and sales Capital expenditures Net cash used in investing activities Cash flows from financing activities: Purchase of common stock Issuance of common stock under employee plans Other Net cash used in financing activities Effect of exchange rate changes on cash Net (decrease) increase in cash $ 1,246 $ 2,177 $ 1,666
(2,606) 2,331 (482) -----(757) -----(2,700) 404 (9) -----(2,305) -----(32) -----1,101
1-10
1-11
Shares Balances at February 2, 2001 Net income Change in unrealized gain on investments, net of taxes Foreign currency translation adjustments Net unrealized gain on derivative instruments, net of taxes Total comprehensive income for fiscal 2002 Stock issuances under employee plans, including tax benefits Purchases and retirements Others Balances at February 1,2002 2,601 -
Amount 4,795 -
Shares -
Amount -
Other (74) -
39 -
__39 1,222
52 __ 52
___ $38
10 ___ $(64)
1-12
The Stocks and Flow Equation Ending equity = Beginning equity + Total (comprehensive) income Net payout to shareholders Comprehensive income = Net income + Other comprehensive income Net payout to shareholders = Dividends + Share repurchases -Share issues
1-13
Other Assets +
Income Statement
Revenues Expenses Net income
1-14
1-15
STATEMENT OF CASH FLOWS Cash from operations Cash investment Cash in financing activities: Dividends Change in cash (5) $0 $5 0
1-16
Market Premium:
Market Value of Equity Book Value of Equity
Price-to-Book Ratio:
Market Value of Equity Book Value of Equity
1-17
Price-to-book ratio
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
1-19
1-20
Matching principle
Match expenses against revenue for which they are incurred
1-21
Good Matching
Only costs of good sold are matched to sales revenue, not the full costs of producing or buying inventory during the period. Thus gross margin (Revenue Cost of good sold) measures value added from trading with customers. Costs for goods not sold are reported in the balance sheet, as inventory, to be matched with revenue in future periods when the inventory is sold. Costs of buying plant are not expensed when incurred. Rather, the cost is capitalized on the balance sheet and depreciated over years when the plant produces revenues. Depreciation is a method of matching the cost of plant to the revenues the plant generates. Employee pension costs are recorded as an expense in the period that employees generate revenues, not when they are paid (in retirement).
1-22
Poor Matching
Research and development expenditures are expensed when incurred, rather than matched to (subsequent) revenues they generate Advertising and promotion costs are expensed when incurred, rather than matched to (subsequent) revenues they generate Estimating useful lives for plant assets that are too long: Depreciation is understated
1-23
60
Price-to-earnings ratio
50
40
30
20
10
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
1-24
Guiding Principles for Recognizing Accounting Value Added The fundamentalist creed: Dont mix what you know with speculation The accountants restatement of the creed (the reliability criterion): Accounting numbers should be based on objective evidence, free of opinion and bias. Go to Accounting Clinic I
1-25