Professional Documents
Culture Documents
Guideline Establishment
GAAP (Generally Accepted Accounting Principles) FASB (Financial Accounting Standards Board) SEC ( Securities & Exchange Commission) IRS (Internal Revenue Service)
Learning Objectives
Explain how firms use accounting Explain how to interpret financial statements Explain how to evaluate a firms financial condition
Management decisions such as how much to produce and how many employees to hire
Earnings of Firm
Value of Firm
Managerial: concerned with preparing information for review by those inside the firm
External Auditors
Ratio Analysis
A quantitative measurement used to evaluate a firms financial performance
Liquidity Ratios
Measures a firms ability to meet its short term obligations
Current ratio
measures the amount of current assets the company has to satisfy each $ of current liability
Efficiency Ratios
Measures how well the firm is managing its assets
Profitability Ratios
Measures a firms ability to generate revenue in excess of expenses
1. Return on Assets
measures the amount of net income generated by every $ invested in assets
Profitability Ratios
2. Return on Sales (Net Profit Margin)
measures how much profit was earned for each sales $
3. Return on Equity
measures how much profit was earned for each $ invested by owners
Debt-to-Equity
Measures the degree to which a firm relies on borrowed funds vs. from owners
(in thousands)
$ 57,606 41,307 35,284 57,402 8,127 $ 199,726 $ 19,398 358,295 176,292 $ 201,401 411,598 $ 812,725 ======== $ 11,572 46,400 $ 57,972 $ 116,523 $ 481,478 156,752 $ 638,230 $ 812,725 ========
Net revenue Costs of goods sold Gross profit (margin) Selling, genl & admin expenses $ 97,821 Other operating income & exp ( 6,315) Total operating expense Earnings before income taxes Income taxes Net income
(in thousands)
$ 68,908 17,963 34,196 55,584 11,328 $ 187,979 $ 19,307 388,878 190,557 $ 217,628 406,485 $ 812,092 ======== $ 13,885 45,367 $ 59,252 $ 118,070 $ 491,898 142,872 $ 634,770 $ 812,092 ========
Net sales Cost of goods sold Gross profit (margin) Selling, genl & admin expenses $ 95,254 Other operating income & exp 10,618 Total operating expense Earnings before income taxes Income taxes Net income