Transcript Who cares about Financial Statements?

Who cares about Financial
Statements?
Do I want to
work here?
Potential
Employees
Will I
be paid?
Creditors
How
good is our
investment?
How are we
performing?
Stockholders
Management &
Employees
The 9 Major Indicators
from Financial
Statements that all
Stakeholders Should
be Looking
for………..
1.
Tracking account values over time, from
one fiscal period to the next
•
•
2.
Consistent Reporting Concept– the same
accounting procedures must be followed every
fiscal period
Do you see at company getting better, worse, or
staying the same
Comparisons of companies from the same
industry and similar in size – Competitor!
 Look at the Income Statement and compare the
Cost of Merchandise Sold %, Gross Profit %, Net
Income %, and Expenses %
3. Analysis of Liquidity
The Cash Flow Statement
Cash on-hand available to be used
 How are they using cash:
• to invest in the future of the company
• to pay off debts
• to hire more employees
 the
more cash you have, the more you can do in the
future with your business
4.
Accounts Receivable Turnover
How quickly we are receiving cash owed
to us from creditors
5. Accounts Payable Turnover
How quickly are we paying debts off as
they become due
6. Inventory Turn-over
Represents the quantity of inventory
that is sold and how quickly it is sold
• Are we selling our Assets (inventory) and turning
the asset into SALES!
• Is inventory depreciating in value???
7.
Analysis of Solvency (opposite of solvency is
bankruptcy)

Ability to stay in business over the long-term



is there demand for products
State of the Economy
Cash in the bank
8. Debt-Equity Ratio:
Total liabilities
Total Equity
Balance Sheet: Net Worth (assets – liabilities)

3 Factors that effect Equity:
 Capital, withdrawals, Profit/Loss
9. Profitability Analysis compared to
Acceptable Industry Standards
The Income Statement
3 sections
Revenue
Expenses
Cost Of Merchandise Sold (initial price of
merchandise paid by retailer)
• This is a Historical Cost concept: merchandise
is valued at the price we paid for it, not what it’s
worth after time
Income Statement Preparation
for a Retailer: THE MATH
Revenue:
Sales
Cost of Merchandise Sold
Beg. Merchandise Inventory, Jan. 1
+ Purchases
Total Cost of Merch Avail. Sale
- Merch Inventory, Dec 31
Cost of Merchandise Sold (COMS)
Gross Profit on Sales (Sales-COMS)
$423,120
$270,480
$189,960
$460,440
$254,640
$205,800
$217,320
Acceptable Industry Standards that Guide Accountants’
Analysis
Sales
100%
Cost of Merchandise Sold
not more than 50%
Gross Profit on Sales
not less than 50%
Total Expenses
not more than 35%
Net Income
not less than 15%
Actions to Correct Unacceptable
Component Percentages

If you have an Unacceptable
Component % for Gross Profit

Increase Sales Revenue

Consider increasing Mark-Up % on
inventory
•

however, be careful, because Sales could
decrease because the inventory may be too
expensive now or even higher than
competitor’s prices
More marketing

Decrease Cost of Merchandise Sold


Consider buying merchandise from a less
expensive source (manufacturer or wholesaler),
consider less expensive raw materials to
manufacture the inventory; consider selling less
expensive inventory/different brands
Increase Sales Revenue

Find ways to sell more! Work with Marketing
Department to find creative ways to sell more
inventory
 If you have an
Unacceptable
Component % for
Total Expenses
 Review expenses from
past fiscal periods and
find ways to reduce
current expenses
Calculate Cost of Merchandise:
not more than 50%
 Saks:
http://finance.yahoo.com/q/is?s=SKS&annual
Cost of revenue / Total revenue = 68%
 Target:
http://finance.yahoo.com/q/is?s=TGT&annual
Cost of revenue / Total revenue =
 Wal-Mart:
http://finance.yahoo.com/q/is?s=WMT&annual
Cost of revenue / Total revenue =
Calculate Gross Profit:
not less than 50%
 Saks:
http://finance.yahoo.com/q/is?s=SKS&annual
Gross Profit / Total revenue = 32%
 Target:
http://finance.yahoo.com/q/is?s=TGT&annual
Gross Profit / Total revenue =
 Wal-Mart:
http://finance.yahoo.com/q/is?s=WMT&annual
Gross Profit / Total revenue =