After studying this chapter, you should understand: How to standardize fi nancial statements for comparison purposes; how to compute and, more importantly, interpret some common ratios; the determinants of a fi rm’s profi tability; some of the problems and pitfalls in fi nancial statement analysis. | Chapter Outline Chapter 3 Working With Financial Statements Chapter Organization Cash Flow and Financial Statements: A Closer Look Standardized Financial Statements Ratio Analysis The Du Pont Identity Using Financial Statement Information Summary and Conclusions copyright © 2002 McGraw-Hill Ryerson, Ltd. CLICK MOUSE OR HIT SPACEBAR TO ADVANCE Hermetic, Inc. Balance Sheet Hermetic, Inc. Balance Sheet as of December 31 ($ in thousands) Assets 1999 2000 Current Assets Cash $ 45 $ 50 Accounts receivable 260 310 Inventory 320 385 Total $ 625 $ 745 Fixed assets Net plant and equipment 985 1100 Total assets $1610 $1845 Hermetic, Inc. Balance Sheet (concluded) Liabilities and equity 1999 2000 Current liabilities Accounts payable $ 210 $ 260 Notes payable 110 175 Total $ 320 $ 435 Long-term debt 205 225 Stockholders’ equity Common stock and paid-in surplus 290 290 Retained earnings 795 895 Total 1085 1185 Total liabilities and equity $1610 $1845 Hermetic, Inc., Income Statement ($ in thousands) Net sales $ Cost of goods sold Depreciation Earnings before interest and taxes $ Interest Taxable income Taxes Net income $ Dividends $ Addition to retained earnings Statement of Cash Flows Operating activities + Net income + Depreciation + Any decrease in current assets (except cash) + Increase in accounts payable – Any increase in current assets (except cash) – Decrease in accounts payable Investment activities + Ending fixed assets – Beginning fixed assets + Depreciation Statement of Cash Flows (concluded) Financing activities – Decrease in notes payable + Increase in notes payable – Decrease in long-term debt + Increase in long-term debt + Increase in common stock – Dividends paid Hermetic, Inc. Statement of Cash Flows Operating activities + Net income + $ + Depreciation + + Increase in payables + – Increase in receivables – – . | Chapter Outline Chapter 3 Working With Financial Statements Chapter Organization Cash Flow and Financial Statements: A Closer Look Standardized Financial Statements Ratio Analysis The Du Pont Identity Using Financial Statement Information Summary and Conclusions copyright © 2002 McGraw-Hill Ryerson, Ltd. CLICK MOUSE OR HIT SPACEBAR TO ADVANCE Hermetic, Inc. Balance Sheet Hermetic, Inc. Balance Sheet as of December 31 ($ in thousands) Assets 1999 2000 Current Assets Cash $ 45 $ 50 Accounts receivable 260 310 Inventory 320 385 Total $ 625 $ 745 Fixed assets Net plant and equipment 985 1100 Total assets $1610 $1845 Hermetic, Inc. Balance Sheet (concluded) Liabilities and equity 1999 2000 Current liabilities Accounts payable $ 210 $ 260 Notes payable 110 175 Total $ 320 $ 435 Long-term debt 205 225 Stockholders’ equity Common stock and paid-in surplus 290 290 Retained earnings 795 895 Total 1085 1185 Total liabilities and equity $1610 $1845 .
