Applications

Chapter 1 - Applications

This lecture is part of Chapter 1:The Basic Financial Statements

Today’s Lecture

A short review of the three basic financial statements

A look at some real financial statements as they can be found on the web

A short review of the numerical methods used

A short Review

What do the three basic financial statements tell us?

•Income Statement:Whether the company is profitable

•Balance Sheet:Whether the company is worth something

•Cash Flow Statement:Whether the company has money to continue its business.

A short Review

Income Statement

Lists Revenues and Expenses like:

• Sales• Interest• Royalties• Cost of Goods sold• Wages• Depreciation• Interest

And gives the net income by summing things up

A short Review

Balance Sheet

Lists Assets and Liabilities like:

• Cash• Accounts Receivable• Inventory• Accounts Payable• Debts• Common Stock• Retained Earning

And makes sure that Assets and Liabilities balance.

A short Review

Cash Flow Statement

Lists Sources and Uses of cash:

• Payments from Customers• Issuance of Debt• Sale of Plant and Equipment• To Suppliers• To Employees• Purchase of new Equipment• Payment of Long Term Debt

And give the net change in Cash.

The Web

The Web is incredibly useful when it comes to financial resources.One reason being the popularity of online brokers.

Let’s have a look at some web sites:

http://quote.yahoo.com/http://quote.com/quotecom/http://cnnfn.cnn.com/

Of course there are many more … but the basic info is usually quite similar.

Quote.com

Yahoo Finance

SEC

All these web sites provide a wealth of information about companies.

In the US all publicly listed companies need to regularly disclose critical financial (and other) information to the SEC (Securities and Exchange Commission) http://www.sec.gov/ .

The information relevant to this chapter is conveniently accessed through any of the previously mentioned sites. Let us use Yahoo for the moment.

Finding Information

Go to http://quote.yahoo.com/

Type a ‘g’ here (without the quotes). This is the so-called ticker symbol for Gillette.

Finding Information

Finding data on http://quote.yahoo.com/

This is how is looks after typing the ‘g’. Press on the button to the right called ‘Get Quotes’.

Finding Information

Finding data on http://quote.yahoo.com/

This will lead to a page with the table below. Click on ‘Profile’ under ‘More Info’.

Finding Information

Finding data on http://quote.yahoo.com/

This will lead to a page with a synopsis of what the company does and with some very basic financial information. The link we are intersted in at the moment is: ‘Financials’. Let’s click on it.

Finding Information

Finding data on http://quote.yahoo.com/

This will lead to a page with links to the Balance Sheet, Cash Flow Statement and the Income Statement.

Balance Sheet

Cash Flow Statement

Income Statement

Numerical Methods

Mainly additions and subtractions in Excel.

Use fonts, style, etc. to clearly present the data.

Since it is generally better to have the three financial statement on separate worksheets, it is important to know how to refer to a cell on another worksheet.

E.g. to refer to cell A1 on the worksheet Sheet1: Use

Name of the worksheet(must be in single quotes if the name contains spaces) Exclamation Mark

Name of the cell‘Sheet 1’!A1

Key Points of the Day

It is imperative to know what the three basic financial statements are about/for.

The three basic financial statement for many (if not most) US listed companies can readily be found on the web.

The actual financial statements for Gillette can indeed almost entirely be understood by the material covered in this chapter.

Hey! This is remarkably useful and not very difficult!