07 eng104-bai 3-v1.0

FINANCIAL STATEMENTS

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Unit 3: Financial statements

UNIT OBJECTIVES - MỤC TIÊU

DURATION (9 periods) - THỜI LƯỢNG HỌC (9 TIẾT)

• Provide students with the language and knowledge related to main types of financial statements.

Cung cấp cho sinh viên vốn ngôn ngữ và kiến thức liên quan đến các loại báo cáo tài chính cơ bản.

• Provide students with the language of describing a graph.

Cung cấp cho sinh viên ngôn ngữ dùng để mô tả biểu đồ.

• At the end of this unit, students will be able to tell and write about main types of financial statements, the main characters of each type and the importance of studying them.

Sau khi kết thúc bài học này, sinh viên có thể nói và viết về các loại báo cáo tài chính cơ bản,những đặc điểm của từng loại. và tầm quan trọng của việc nghiên cứu các báo cáo tài chính.

In this unit, we will learn the language and knowledge

related to main types of financial statements and their main

characteristics.

Trong bài học này chúng ta sẽ học về những kiến thức ngônngữ và kế toán liên quan đến các loại báo cáo tài chính cơbản và các đặc điểm chính của từng loại báo cáo tài chính.

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Match the words or expressions in column A with their definitions in column B.The suggested time to do this exercise is 10 minutes.

Column A Column B

1 Profit and loss account A A description of the ways a new business hopes to make money, showing possible income and expenditure

2 Balance sheet B Financial statement which shows a company’s financial condition (amount of debits and credits) onthe last day of an accounting period

3 Share certificate C The net profit or net income line on a profit and loss account or income statement

4 Capital expenditure D Items of value which are not easily changed intocash but which the business needs

5 Bottom line E Cash and other liquid assets in excess of current liabilities; the ease with which an asset can be spentor sold

6 Business plan F Financial statement which shows the profit or lossmade by a company during the accounting period

7 Liquidity G A document which represents a part of the total stockvalue of a company and which shows who owns it

8 Dividend H A share in the annual profits of a limited company,paid to shareholders

9 Fixed assets I Those whose value can only be quantified or turnedinto cash with difficulty (e.g. copyrights, trademarks)

10 Intangible assets J Major spending on large items necessary for the business, such as property or equipment

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Text A: Read text A below and do exercise 2.1. The suggested time for readingthe text and completing the exercise is 30 minutes

FINANCIAL STATEMENTS

Financial statements

If you can read a nutritionlabel or a baseball box

score, you can learn to readbasic financial statements. Ifyou can follow a recipe orapply for a loan, you can learnbasic accounting. The basicsaren’t difficult and they aren’tscience.

There are four main financialstatements. They are: (1) balancesheets; (2) income statements;(3) cash flow statements; and(4) statements of shareholders’equity. Balance sheets showwhat a company owns andwhat it owes at a fixed point intime. Income statements showhow much money a companymade and spent over a periodof time. Cash flow statementsshow the exchange of moneybetween a company and theoutside world also over a period of time. The fourth financial statement, called a “statement of shareholders’equity,” shows changes in theinterests of the company’s

shareholders over time. The followings will look into details of the first three financial statements.

Balance Sheets

Abalance sheet provides detailed information about

a company’s assets, liabilitiesand shareholders’ equity. Assets are things that a com-pany owns that have value.This typically means they caneither be sold or used by thecompany to make products orprovide services that can besold. Assets include physicalproperty, such as plants, trucks,equipment and inventory. Italso includes things that can’tbe touched but neverthelessexist and have value, such astrademarks and patents. Andcash itself is an asset. So are investments a company makes.

Liabilities are amounts ofmoney that a company owes toothers. This can include allkinds of obligations, likemoney borrowed from a bank

to launch a new product, rentfor use of a building, moneyowed to suppliers for materials,payroll a company owes to its employees, environmentalcleanup costs, or taxes owed tothe government. Liabilities alsoinclude obligations to providegoods or services to customersin the future.

Shareholders’ equity is some-times called capital or networth. It’s the money thatwould be left if a company soldall of its assets and paid off allof its liabilities.

This leftover money belongs tothe shareholders, or the owners,of the company.

A company’s balance sheet isset up like the basic accountingequation. On the left side of thebalance sheet, companies listtheir assets. On the right side,they list their liabilities andshareholders’ equity. Some-times balance sheets show assets at the top, followed by liabilities, with shareholders’equity at the bottom.

A balance sheet shows a snap-shot of a company’s assets, liabilities and shareholders’ equity at the end of the report-ing period. It does not show theflows into and out of the accounts during the period.

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Income Statements

An income statement is a report that shows how

much revenue a companyearned over a specific time period (usually for a year orsome portion of a year). An income statement alsoshows the costs and expensesassociated with earning thatrevenue. The literal “bottomline” of the statement usuallyshows the company’s net earnings or losses. This tellsyou how much the companyearned or lost over the period. Income statements also reportearnings per share (or “EPS”).This calculation tells you howmuch money shareholderswould receive if the companydecided to distribute all of thenet earnings for the period.(Companies almost never dis-tribute all of their earnings.Usually they reinvest them inthe business.) To understand how incomestatements are set up, think ofthem as a set of stairs. You startat the top with the total amountof sales made during the accounting period. Then yougo down, one step at a time. At each step, you make a deduction for certain costs

or other operating expenses associated with earning the revenue. At the bottom of thestairs, after deducting all of theexpenses, you learn how muchthe company actually earned orlost during the accounting period. People often call this“the bottom line.”

Cash Flow Statements

Cash flow statements reporta company’s inflows and

outflows of cash. This is im-portant because a companyneeds to have enough cash onhand to pay its expenses andpurchase assets. While an in-come statement can tell youwhether a company made aprofit, a cash flow statementcan tell you whether the com-pany generated cash.

A cash flow statement showschanges over time rather thanabsolute dollar amounts at apoint in time. It uses and re-orders the information from acompany’s balance sheet andincome statement.

The bottom line of the cashflow statement shows the netincrease or decrease in cash forthe period. Generally, cashflow statements are dividedinto three main parts. Each part

reviews the cash flow from oneof three types of activities: (1)operating activities analyzes acompany’s cash flow from netincome or losses; (2) investingactivities shows the cash flowfrom all investing activities,which generally include pur-chases or sales of long-term assets; and (3) financing activ-ities statement shows the cash flow from all financingactivities.

Although this article discusseseach financial statement sepa-rately, keep in mind that theyare all related. The changes inassets and liabilities that yousee on the balance sheet arealso reflected in the revenuesand expenses that you see onthe income statement, whichresult in the company’s gains orlosses. Cash flows providemore information about cashassets listed on a balance sheet and are related, but notequivalent, to net income shownon the income statement. Andso on. No financial statementtells the complete story. Butcombined, they provide verypowerful information for investors. And information isthe investor’s best tool when itcomes to investing wisely.

Source: Text A: From Beginners' Guide to Financial Statements, US Securities and Exchange Commission,http://www.sec.gov/investor/pubs/begfinstmtguide.htm

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According to text A, which of the following sentences are true (T) or false (F)

In which kind of financial statements can you find the information about the followings? Put them in the correct box

assets expenses inflows of cash

liabilities outflows of cash revenue cost

shareholders’ equity investing activities ESP

Below you will find answers to five different questions. Read the text again andtry to supply the missing questions

Example: What are the four main financial statements?

They are balance sheets, income statements, cash flow statements, and statements of shareholders’ equity.

1. ………………………………………………………………………………?

They can either sell or use them to make products or provide services for profit.

2.1

2.2

2.3

Questions T/F

1. Financial statements show financial information of a company from theestablishment to the present

2. Assets includes visible and invisible valuable things that a company owns.

3. Liabilities are amount of money that a company owns from others.

4. A balance sheet gives an overview of accounting equation.

5. Looking at the income statement, investors can estimate how much moneythey might receive

6. The income statements are set up from the bottom to the top.

7. A cash flow statement shows how the company generates cash.

8. A cash flow statement is set up separately from the balance sheet and theincome statement.

9. A cash flow statement often analyzes the cash flow from three angles.

10. The financial statement, balance sheet and cash flow statement have no relationship with each other.

Balance sheet Income statement Cash flow statement

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2. ………………………………………………………………………………?

Trademarks are intangible assets.

3. ………………………………………………………………………………?

It shows information about a company’s assets, liabilities and shareholders’ equity at theend of the reporting period.

4. ………………………………………………………………………………?

The “bottom line”.

5. ………………………………………………………………………………?

To know whether it has enough cash on hand to pay its expenses and purchase asset.

Text B: Read text B and do exercices 2.4 and 2.5 below. The suggested time forreading the text and completing the exercise is 30 minutes

THE INS AND OUTS OF CASH FLOW STATEMENTS

U nderstanding your cash flow statement is key to tracking your business's financial health.

Cash is what keeps your business functioning. You obviouslyneed profit, but equally as critical is your cash flow.

It's important to know the financial health of your business, which is why you need to understand the purposes of your different financial statements. Your traditional financial statements include a balance sheet,profit and loss statement, and cash flow statement. Whatdoes the cash flow statement tell you that the others don't?

There's a difference between profitability and cash flow. You may be profitable and still havea negative cash flow, which is a difficult concept to understand for most business owners.Why? There are things that take cash out of the business that don't classify as expenses andtherefore don't appear on your profit and loss statement. These include:

• Payment of loan principal • Payment of credit card principal • Owner's draws

These transactions take cash out of the business and therefore show up on your cash flowstatement, but not on your profit and loss statement. When you borrow money from a lenderor credit card vendor, you don't count it as income. Therefore, when you pay it back, youdon't count it as an expense. The interest or finance charges you incur on borrowing thatmoney are an expense and will appear as an expense and use of cash. Similarly, when you invest money in your own business as an owner's investment, it's not counted as income. So when you take money out as an owner's draw, it doesn't count as an expense. Owner'stransactions affect your equity, not your revenue or expense accounts.

When looking at a cash flow statement, you have three main breakdowns that show wherecash is coming from and going to:

• Operations • Investing • Financing

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Operating activities include your day-to-day operations.Increases and decreases in receivables and payables areaccounted for on your cash flow statement, as are otheractivities from operating your business and selling yourproducts and services. The operating section is where yourmain cash flow should be generated. Long-term businesshealth comes from having a good net profit and positivecash flow from your operating activities.

Investing activities include the purchase and sale of yourlong-term fixed assets, such as property, plant and equipment.

Financing activities include the borrowing and repayment of long-term liabilities. Understanding what your cash flow statement is telling you about your business is critical.All three of your main financial statements - balance sheet, profit and loss statement, and cash flow statement - relay a different view of your business, and each is critical to theoverall health of your business.

Source: From The Ins and Outs of Cash Flow Statements, By Pam Newman, May 15, 2007 http://entrepreneur.com

Match the column A with column B to make meaningful statements

Fill in the blanks with the following words

assets and debts business plans expenses in the middle

movement on the left on the right

records revenue whether or not

Financial statements are ___(1)_____ that provide an indication of an individual’s, organization’s, or business’ financial status. There are three basic types of financial statements: balance sheet, income statement, and cash-flow statement. Typically, financialstatements are used in relation to business endeavors.

Balance sheet are used to provide insight into a company’s ____(2)____ at a particularpoint in time. Information about the company’s shareholder equity is included as well. Typically, a company lists its assets ____(3)____ side of the balance sheet and its debts

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2.4

2.5

1 Although investors are making profit A but they are not classified as expenses.

2 There are some transactions that take cashout of the business,

B nor is it counted as expense whenpaid back.

3 Money borrowed from a lender is not considered income,

C and each is important to the overall health of the business.

4 Interest paid for loans is counted as expense,

D they may still have a negative cashflow.

5 All the three main financial statementsgive different angles of the business,

E and it will appear as an expenseand use of cash.

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and liabilities____(4)____. Sometimes, however, a balance sheet has assets listed at the top,debts ___(5)_____, and shareholders’ equity at the bottom.

Income statement present information concerning the __(6)______ earned by a companyin a specified time period. Income statements also show the company’s __(7)______ in attaining the income and shareholder earnings per share. At the bottom of the income statement, a total of the amount earned or lost is included. Often, income statements providea record of revenue over a year’s time.

Cash-flow statements provide a look at the ___(8)_____ of cash in and out of a com-pany. These financial statements include information from operating, investing, and financing activities. The cash-flow statement can be important in determining ___(9)_____a company has enough cash to pay its bills, handle expenses, and acquire assets. At the bottom of a cash-flow statement, the net cash increase or decrease can be found.

The average individual does not typically have a use for financial statements. However, sole proprietors may use them in the same manner as other businesses. High-net-worth individuals may also use them for obtaining loans, participating in investment deals, and de-veloping financial, tax, and ____(10)____. In some cases, personal financial statements maybe used when running for a government office.

Listening 1

Listen to a lecture about the Financial statements TWICE and decide if the statements below are TRUE (T) or FALSE (F)

Listening 2

Listen to a lecture ONCE again and fill ONE word into each blank below

Now, let’s move on to the income statement. Income statement present (1) _________concerning the (2) _________ earned by a company in a (3) _________ time period. Income statement also show the company’s (4) _________ in attaining the income andshareholder (5) _________ per share. At the bottom of the income statement, a total of

3.1

3.2

Questions T/F

1. The users of financial statements are quite various.

2. In order to use financial statements, users must know everything aboutaccounting.

3. Financial statements are classified into four main types.

4. The balance sheet shows assets and liabilities of a company.

5. In a typical balance sheet, assets are listed on the right, and liabilities onthe left.

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the amount (6) _________ or lost is included. Often, income statements provide a record ofrevenue over a year’s time.

Ok, right. And next is the cash flow statement. Cash-flow statement provide the (7) _______ of cash in and out of a company. These financial statements include informationfrom (8) _________, investing, and financing activities. The cash-flow statement can be important in determining whether or not a company has enough cash to pay its bills, handle(9) _________, and acquire assets. At the (10) _________ of a cash-flow statement, the net

cash increase or decrease can be found.

And finally, I will give you the overview of the lastbasic type of financial statement. Shareholders’ equity show(11) _________ in a company's or organization’s retained earnings over a specific period of time. These statementsshow the beginning and final balance of retained earnings,as well as any adjustments to the (12) _________ that occurduring the reporting period. This information is sometimesincluded as part of the balance sheet, or it may be (13)_________ with an income statement. However, it is frequently provided as a completely separate statement.

The average individual does not typically have a use for financial statements. However, sole proprietors may use them in the same manner as other businesses. High-net-worth individuals may also use them for the purpose of obtaining loans, participating in (14)_________ deals, and developing financial, tax, and business plans. In some cases, personalfinancial statements may be used when running for a (15) ______ office.

Select the correct choice to complete each sentence. The suggested timefor completing the exercise is 5 minutes

1. The income received by someone who lends money is called _____.

a. dividends b. interest c. loan

2. Last year we issued bonus shares and ______ $2 million.

a. raised b. rose c. arose

3. Assets are what you _____, liabilities are what you _____.

a. owe – own b. own – owe c. own - owl

4. A preference share receives a dividend _____ the other classes of share.

a. before b. when c. after

5. ESP is a company’s distributable profit divided by the number of _____.

a. shareholders b. dividends c. shares

4.1

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4.2Fill in each gap with ONE word from the word list below. The suggested time fordoing this exercise is 5 minutes

balance sheet earning per share payroll cash flow statement

profit and loss account accounting period business plan dividend

1. A ............................... shows a company’s financial condition at the end of an accountingperiod.

2. You can know how much the profit or loss of a company during a given period by lookingat the ...........................

3. A......................... reports a company’s inflows and outflows of cash.

4. The ............................ is caculated by dividing a company’s distributable profit by the num-ber of shares.

5. The payments to a company’s employees are listed in a........................

6. The period of time reflected in financial statements, usually either the calendar year or aquarter is called an ................................

7. Before setting up a company, the entrepreneur is expected to make a .................... whichshows the company’s possible income and expenditure.

8. All shareholders look forward to a high ................... as a return of their investment in shares.

Based on the information in the two texts above, answer the following questionswith your own words

1. What does a balance sheet provide?

……...............................................................………….

2. What does an income statement show?

……...............................................................………….

3. What are reported in a cash flow statement? Why?

……...............................................................………….

4. How do the financial statements relate to each other?

……...............................................................………….

Case study

Foward Investments (FI) has headquarter in Singapore. It is run by a group of rich people who invest money incompanies. It is willing to take risks by buying sharesof start-up or small companies, but also puts money intolarger companies which have good prospects for growth.

5.1

5.1

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At present, it has $10 million to spend and it has chosen three companies as potential investments.

1. TECHNOPRINT

Technoprint is a manufacture of office equipment, based in Warsaw, Poland. Its main products are inkjet and laser printers.

Present share price: $4.14 High (last year): $5.42 Low (last year): $3.59

2. UNIBRAND

Unibrand is a fashion retailer based in Amsterdam selling a variety of international brands.


3. ONLINE FASHIONS

OLF is based on its website www.OLF.com. Its target audience is fashion-concious women aged between 30 and 45 who want to keep up with the lastest trends in clothing and accessories.


And here are the comments of the three companies’ CEOs to investors.

Turnover

($ million)

Pre-tax profit

($ million)

Earning per

share (cents)

Dividend per

share (cents)

Last year 90.8 10.9 51 5.7

2 years ago 88.3 9.9 42 3.9

3 years ago 69.4 4.8 24 0.6

Turnover for the first 6 months of this year: $64.5 million

Turnover

($ million)

Pre-tax profit

($ million)

Earning per

share (cents)

Dividend per

share (cents)

Last year 370 52.7 19.5 2.2

2 years ago 208 30.1 12.9 1.8

3 years ago 283 27.86 11.14 1.65

Turnover for the first 6 months of this year: $ 204 million

Turnover

($ million)

Pre-tax profit

($ million)

Earning per

share (cents)

Dividend per

share (cents)

Last year 19.3 2.1 0.38 nil

2 years ago 9.1 -2.561 3.8 nil

3 years ago 4.9 -2.862 -5.6 nil

Turnover for the first 6 months of this year: $ 204 million

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It’s been another excellent year for our inkjet sales. They increasedfourteen percent worldwide, even though prices generally for inkjetshave fallen because of competition. Our sales of cartridges increasedby over twelve percent. Our sales of laser printers remained steady.Our new laser printer has great potential. We expect it to dominate themarket as it has several unique features. We will continue to reduce costs by sourcing components from low cost countries.

Technoprint

I am delighted to report another outstanding performance. Visits to our website have increased to 82,000 daily. We now have over400,000 regular users. We are launching a multimedia advertisingcampaign to promote our new ranges of jewellery and travel accessories. We expect to increase our sales target by at least fiftypercent and become the leading online designer clothing company.

Olf

We plan to increase sales by at least ten percent this year. We have excellent sales opportunities in South America and Asia. We are opening twenty new sales offices in those areas and increasing ourmarketing effort. We have already launched a new perfume and we expect it to be very successful.

Unibrand

You are a financial executive of FI. Study all the statistics in the reports above and make a short presentation to your Director aboutwhich company/ companies FI should invest in and/or what proportion of $10 million FI will invest in each company.

Task

Compare your decisions with your partner(s).

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6.1 Describing a Graph

1. Overview of a graph

A graph is a diagram, usually a line or curve, which shows

how two or more sets of numbers or measurements are

related.

The names of the axes on a graph are the vertical axis and

the horizontal axis. The vertical axis is sometimes called the

y axis, and the horizontal axis is sometimes called the x axis.

There are some types of lines used to present information on a graph.

_________________: solid line

……………………….: dotted line

- - - - - - - - - - - - - - - -: broken line

2. Language of writing

Here are some useful expressions for you to describe the graph

Expressing movement: verbs and nouns

Verbs (past tense)

Rose (to) increased to went up to climbed to boomed fell (to) declined (to) decreased (to) decreased to zerodipped (to) dropped (to) went down (to) reduced (to)

Nouns

a risean increasegrowthan upward trenda boom (a dramatic rise)a falla declinea decrease

a dropa slump (a dramatic fall)a reduction

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* stood at (use this phrase to focus on a particular point, before we mention the movement,for example: In the first year, unemployment stood at...)

Describing the speed of change

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Describing the movement

dramatic

dramatically

huge

steep

steeply

considerable

considerably

marked

markedly

slight

slighty

minimal

minimally

Adjectives and adverbs

sharp

sharply

enormous

enormously

substantial

substantially

significant

significantly

moderate

moderately

small

Adjective

rapid

quick

swift

sudden

steady

gradual

slow

Adverbs

rapidlyquicklyswiftlysuddenlysteadilygraduallyslowly

Verbs (past tense)

levelled out (at) did not change remained stable (at)remained steady (at)stayed (at)stayed constant (at)maintained the same levelfluctuated (around) peaked (at) stood (at)*

Nouns

a levelling outno change

a fluctuation reached a peak (of)

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Writing Practice

Write a report for a university lecturer describing the information in the graphbelow. The suggested time for completing the exercise is 40 minutes

PROFITS OF AFC FROM 1990 TO 2005

Unit: billion dollars

6.2


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English temps Vietnamese equivalents

A

- Accounting period

B

- Balance sheet

C

- Cash flow statement

- Cleanup cost

E

- Equation

- Earnings per share

F

- Financial statement

I

- Income statement

- Intangble asset

P

- Physical property

- Payroll

S

- Shareholders’ equity

- Kỳ kế toán

- Bảng cân đối kế toán

- Báo cáo lưu chuyển tiền tệ

- Chi phí thanh lý

- Phương trình, công thức

- Lãi trên mỗi cổ phần

- Báo cáo tài chính

- Báo cáo thu nhập

- Tài sản vô hình

- Tài sản hữu hình

- Bảng lương, tổng quỹ lương

- Vốn chủ sở hữu

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07 eng104-bai 3-v1.0

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