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    Chapter 7 - Financial Statements

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    Trần Anh Tuấn
    The document provides an overview of key financial statements including the income statement, balance sheet, cash flow statement, and notes to the financial statements. It defines each statement and describes their purpose. The income statement shows a company's revenues and expenses over a period of time. The balance sheet outlines a company's assets, liabilities, and equity at a point in time. The cash flow statement explains changes in a company's cash balance over a period. The notes provide additional context and details to the information in the other statements. Key financial ratios that can be calculated from the statements, such as profit margins and debt-to-equity, are also discussed.

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    Chapter 7 - Financial Statements

    Uploaded by

    Trần Anh Tuấn
    6 views23 pages
    The document provides an overview of key financial statements including the income statement, balance sheet, cash flow statement, and notes to the financial statements. It defines each statement and describes their purpose. The income statement shows a company's revenues and expenses over a period of time. The balance sheet outlines a company's assets, liabilities, and equity at a point in time. The cash flow statement explains changes in a company's cash balance over a period. The notes provide additional context and details to the information in the other statements. Key financial ratios that can be calculated from the statements, such as profit margins and debt-to-equity, are also discussed.

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    Chapter 7_Financial Statements

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    The document provides an overview of key financial statements including the income statement, balance sheet, cash flow statement, and notes to the financial statements. It defines each statement and describes their purpose. The income statement shows a company's revenues and expenses over a period of time. The balance sheet outlines a company's assets, liabilities, and equity at a point in time. The cash flow statement explains changes in a company's cash balance over a period. The notes provide additional context and details to the information in the other statements. Key financial ratios that can be calculated from the statements, such as profit margins and debt-to-equity, are also discussed.

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    © All Rights Reserved
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    Download as pdf or txt
    6 views23 pages

    Chapter 7 - Financial Statements

    Uploaded by

    Trần Anh Tuấn
    The document provides an overview of key financial statements including the income statement, balance sheet, cash flow statement, and notes to the financial statements. It defines each statement and describes their purpose. The income statement shows a company's revenues and expenses over a period of time. The balance sheet outlines a company's assets, liabilities, and equity at a point in time. The cash flow statement explains changes in a company's cash balance over a period. The notes provide additional context and details to the information in the other statements. Key financial ratios that can be calculated from the statements, such as profit margins and debt-to-equity, are also discussed.

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    of 23

    CHAPTER 7: FINANCIAL

    STATEMENTS
    Learning Objectives
    Describe the definition and roles of financial
    statements

    Prepare Financial statements (basic)

    Identify and Explaining basic ratios in Financial


    statements
    Financial Statements 01 02

    Financial
    statements
    03 04
    Financial Statements
    Number Financial statement
    1 Income statement Communicate information about a business’s
    financial performance by summarizing
    revenues less expenses over a period of time.
    2 Balance sheet/Statement of Show a business’s assets, liabilities, and equity
    financial position at a point in time.

    3 Cash-flow statement Explain how the balance in cash changed over


    a period of time by detailing inflows and
    outflows of cash by type of activites a
    business engages in: operating, investing and
    financing.
    4 Notes to the financial Provide greater detail about various amounts
    statements shown in the financial statements or provide
    non-quantitative information that is useful to
    users.
    Balance Sheet

    Balance Sheet:
    a statement that lists what the organization owns (assets), what it
    owes (liabilities), and what it is worth (equity) on a specific date.
    Providing an essential glimpse into profitability potential for
    investors and insights into capital structure management, solvency,
    bankruptcy, financial autonomy.
    Balance Sheet
    Balance Sheet
     Assets:
     Sorting base on the decrease in liquidity
     Current assets: are typically used up, sold, or converted to cash in one year or less.
     Non-current assets: are not expected to be converted into cash or used up within one year.
     Liabilities:
     Short-term liabilities are typically expected to be paid within one year or less.
     long-term liabilities are typically expected to be due for payment more than one year past the current balance sheet date.
     Equity:
     The remaining of assets.
     Showing the Accounting Equation: Assets = Liabilities + Equity
     Using the closing balance of permanent accounts (assets, liabilities, equity) to filled items on Balance Sheets
     Closing balance of asset accounts  ASSETS
     Closing balance of liability accounts  LIABILITIES
     Closing balance of equity accounts  EQUITY
    Balance Sheet
    Exceptional cases:
    Closing balance of adjusting accounts (provisions, depreciation)  on
    ASSETS but negative figure
    Closing balance of equity in DEBIT side  Negative figure on EQUITY
    Receivables and Payables using detail closing balances:
    Receivables: closing balance on DEBIT  ASSETS; closing balance on CREDIT
     LIABLITIES
    Payables: closing balance on CREDIT  LIABILITIES; closing balance on DEBIT
     ASSETS
    Balance Sheets

    to measure a firm’s ability to pay current liabilities with its current
    assets.
     if this ratio is less than 1, it means the firm does not have the capital
    on hand to meet its short-term obligations

    measures a company's capacity to pay its current liabilities without


    needing to sell its inventory or obtain additional financing
     A higher ratio indicates firm could pay off current liabilities for several
    times over. However, if the quick ratio is too high, the firm isn’t using its
    assets efficiently
    Balance Sheet

    Indicate the percentage of a firm’s assets that are provided via


    liabilities  capital structure
    A higher debt-equity ratio indicates a levered firm, which is quite
    preferable for a company that is stable with significant cash flow
    generation, but not preferable when a company is in decline.
    Conversely, a lower ratio indicates a firm less levered and closer to
    being fully equity financed. The appropriate debt to equity ratio varies
    by industry.
    Income Statement
    Income Statement:
    a statement that shows
    the organization’s
    financial performance
    for a given period of
    time.
    using temporary
    accounts for this reports
     revenue, expenses
    accounts
    Income Statement

    Step1: NET REVENUE = REVENUE – DEDUCTIONS

    Step 2: GROSS PROFIT= NET REVENUE – COST OF GOODS SOLD

    Operating = Gross + Financial - Financial - Selling - General and


    Income Profit income expenses expense administrative expense

    Step 4: Other Profit (loss) = Other income– Other expenses


    Step 5:
    Net income before tax = Operating income+Other profit (loss)
    Step 6:
    Net income after tax = Net income before tax-taxes
    Income Statement

    Roles of Income Statement:


    show a company’s financial performance over a given time period. It
    tells the financial story of a business’s operating activities:
    whether the business is generating a profit or spending more than it earns
    when costs are highest and lowest
    how much it’s paying to produce its product
    understand how well a business is doing in relation to its expected
    future performance  making decisions
    Income Statement

    The ratio indicates the percentage of each dollar of revenue that the
    company retains as gross profit.
    A gross profit margin ratio of 50 to 70% would be considered healthy
     depending on types of businesses
    It’s best used to track a company’s performance over time or to
    compare businesses in the same industry
    Income Statement

    Whether your company is operationally efficient or not


    Allows to compare your company to others in the same industry
    maintain or improve your competitive advantage
    profitability
    Income Statement

    The net profit margin ratio shows the percentage of sales revenue a
    company keeps after covering all of its costs including interest and taxes
    Determine a company's ability to convert the profit made from sales into
    net income  measure profitability of firms
    Proof that the organization is being run efficiently track a company’s
    performance over time or to compare businesses within the same industry
    Free Cash Flow Statement

    Free Cash Flow Statement:


    Show inflow and outflow of cash and cash equivalents from various
    activities of a company during a specific period.
    Use cash basic accounting
    Enables users to determine how well a company’s income generates cash
    and to predict the potential of a company to generate cash in the future.
    Cash flows presents sources and uses of cash in three distinct categories:
    cash flows from operating activities, cash flows from investing activities,
    and cash flows from financing activities
    Free Cash Flow Statement
    Free Cash Flow Statement

    Cash flows from operating activities arise from the activities a


    business uses to produce net income.
    Cash flows from investing activities are cash business transactions
    related to a business’ investments in long-term assets.
    Cash flows from financing activities are cash transactions related to
    the business raising money from debt or stock, or repaying that debt.
    Free Cash Flow Statement
    Notes to the financial statements

    Provide narrative description or disaggregation of items presented in


    the financial statements and information about items that do not
    qualify or recognition
    It contains information in addition to that presented in the statement
    of financial position, income statement, statement of comprehensive
    income, statement of changes in equity and statement of cash flows
    Notes to the financial statements

    Contents of Notes:
    Present information about the basis of preparation of the financial
    statement and the specific accounting policies.
    Disclose the information required by Vietnamese financial reporting
    standards that is not presented in the financial statements
    Provide additional information which is not presented in the financial
    statements but is relevant to an understanding of the financial
    statements
    QUESTIONS???

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