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This 3 page Class Notes was uploaded by Winn on Saturday March 19, 2016. The Class Notes belongs to MGT 460 at Marshall University taught by Dr. Uyi Lawani in Spring 2016. Since its upload, it has received 8 views.
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Date Created: 03/19/16
Financial Analysis Sales Sales include all revenue earned by the company, excluding any discounts, allowances, etc. CoGS CoGs is the Cost of Goods Sold – this includes all the costs of producing and/or acquiring the products or services the company sells. It includes raw materials, the direct labor costs of those producing the product/service, and any other expenses directly related to production Gross Profit This represents the amount the firm receives in sales above what it costs to produce the product or service being sold Operating expenses Operating expenses may be represented by a single category – Selling, General and Administrative expenses (S, G & A) or they may be broken down into multiple categories (e.g. administrative and staff salaries, marketing expenses, R&D, etc). It represents the firms operating costs not directly related to producing the good or service. Operating Income Operating Income also known as Earnings Before Taxes, Interest and Depreciation (EBITD), represents what the firm earned from its operating activities. That is, it does not yet account for any financing activities of the firm or taxes. Interest Any interest paid during the reporting period on short and/or long-term debt Taxes Note that this is Corporate Income Taxes – sales taxes, payroll taxes, and the like have already been included in CoGS or Operating Expenses Depreciation While many people will include Depreciation as part of Operating Expenses, we show it separately here because it generally does not involve a payment of real money (i.e. it is an accounting convention) and because it is not a direct expense related to operations. Be careful, though, to examine the income statement you are analyzing to see how it is treated there. Net Income The profit earned for the period (quarter, year, etc.) that is available for distribution to the owners and/or reinvestment in the company. Balance Sheet Where the income statement tracks a firm’s activities over a period of time, the balance sheet describes a firm’s financial position at a single point in time. To again relate it to your own finances, consider what you would get if you added up all your assets (e.g., cash, checking and savings, physical assets that you own, salary earned but not yet received, other money that may be owed to you, etc.) and compared it to all your liabilities (e.g. bills that are not yet paid, loans, etc.). This would provide an indication of your net worth and again provides a very rough approximation of what a balance sheet represents for a company. The major difference is that a company’s balance sheet includes equity (money invested by the owners either directly through stock or through retained earnings) along with the liabilities so that the Total Assets = Total Liabilities + Equity. That is, they “balance” and hence the Balance Sheet name. The table that follows shows the items normally included in the balance sheet along with brief explanations of each item. Assets Current Assets Current Assets = Cash and marketable securities plus assets that could be converted to cash fairly easily. These typically include things like Accounts Receivable and Inventory + Fixed Assets Fixed Assets may also be called Plant, Property & Equipment (P, P & E). These are things like machinery and equipment the company owns, any buildings and/or land, etc. Note that only the net value of these is included – that is, the value reflects current value after depreciation, not necessarily what the company originally paid. +Other Assets Other Assets might include things like Investments, Patents and Goodwill, though the value of these can sometimes be tricky to estimate = Total Assets Liabilities & Equity Current Debt Current Debt includes things like accrued expenses, accounts payable and short-term debt. As a rule of thumb, it includes liabilities that will come due within the next year . +Long Term Debt Long-term debt includes things like mortgages and money borrowed that is due in more than a year +Equity Equity includes both stock and retained earnings from prior years (since that was money owed to the owners but retained to invest in the company) =Total Debt & Equity
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