Lecture Practical business math procedures (11/e) - Chapter 16: How to read, analyze, and interpret financial reports. In this chapter students will be able to: Explain the purpose and the key items on the balance sheet, explain and complete vertical and horizontal analysis, explain the purpose and the key items on the income statement, explain and complete vertical and horizontal analysis,. | HOW TO READ, ANALYZE, AND INTERPRET FINANCIAL REPORTS Chapter Sixteen Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Explain 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 Date Learning unit objectives LU 16-1: Income Statement -- Report for a Specific Period of Time Explain the purpose and the key items on the income statement. Explain and complete vertical and horizontal analysis. LU 16-3: Trend and Ratio Analysis Explain and complete a trend analysis. List, explain, and calculate key financial ratios. 2 16- Accounting Equation Accounting Equation: Assets = Liabilities + Owner’s Equity 3 Balance Sheet Gives a financial picture of what a company is worth as of a particular date. Assets Liabilities + Owner’s Equity = (How much the company owns) (How much the owner is worth) (How much the company owes) 4 Elements of the Balance . | HOW TO READ, ANALYZE, AND INTERPRET FINANCIAL REPORTS Chapter Sixteen Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Explain 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 Date Learning unit objectives LU 16-1: Income Statement -- Report for a Specific Period of Time Explain the purpose and the key items on the income statement. Explain and complete vertical and horizontal analysis. LU 16-3: Trend and Ratio Analysis Explain and complete a trend analysis. List, explain, and calculate key financial ratios. 2 16- Accounting Equation Accounting Equation: Assets = Liabilities + Owner’s Equity 3 Balance Sheet Gives a financial picture of what a company is worth as of a particular date. Assets Liabilities + Owner’s Equity = (How much the company owns) (How much the owner is worth) (How much the company owes) 4 Elements of the Balance Sheet (Figure ) MOOL COMPANY Balance Sheet December 31, 2014 Assets Liabilities a. Current assets: a. Current liabilities: b. Cash $ 7,000 b. Accounts payable $ 80,000 c. Accounts receivable 9,000 c. Salaries payable 12,000 d. Merchandise inventory 30,000 d. Total current liabilities $ 92,000 e. Prepaid expenses 15,000 e. Long-term liabilities: f. Total current assets $61,000 f. Mortgage note payable 58,000 g. Plant and equipment: g. Total liabilities $150,000 h. Building (net) $60,000 i. Land 84,000 Stockholders’ Equity j. Total plant and equipment 144,000 a. Common stock $ 20,000 b. Retained earnings 35,000 c. Total stockholders’ equity 55,000 k. Total assets $205,000 d. Total liab. and stkhlds’ equity $205,000 Assets broken down into current assets and plant and equipment Liabilities broken down into current and long-term Total of current assets and plant and equipment. (Total is double-ruled) Total of all liabilities and stockholders’ equity. 5 Preparing a Vertical Analysis of a
