Review of Accounting参考.ppt

Review of Accounting 2 Chapter 2 - Outline What is Accounting? The Income Statement (I/S) The Price/Earnings Ratio The Balance Sheet (B/S) Comparison of Market Value to Book Value Limitations of Financial Statements The Statement of Cash Flows (CFs) Comparison of Accounting and Cash Flows Income Tax Considerations Summary and Conclusions What is Accounting? Accounting provides financial information about a business Of interest to stakeholders in business: shareholders managers creditors governments Information is used to make decisions about a business Financial statements summarize accounting information Most important financial statements: Income Statement Balance Sheet Statement of Cash Flows Basic Financial Statements Income Statement Balance Sheet Statement of Cash Flows Income Statement Device to measure the profitability of a firm over a period of time It covers a defined period of time It is presented in a stair-step or progressive fashion to examine profit or loss after each type of expense item is deducted Income Statement An Income Statement shows profitability for a period (ex.; 1 year). Can be prepared in steps: (1) Sales - Cost of Goods Sold (COGS) = Gross Profit (GP) (2) GP - Operating Expenses = Earnings Before Interest and Taxes (EBIT) or Operating Income (OI) (3) EBIT - Interest = Earnings Before Taxes (EBT) (4) EBT - Taxes = Earnings Aftertaxes (EAT) or Net Income (NI) Income Statement (cont’d) Return to Capital Three primary sources of capital: Bondholders Preferred stockholders Common stockholders Earnings per share Interpreted in terms of number of outstanding shares May be paid out in dividends or retained by company for subsequent reinvestment Statement of retained earnings Indicates disposition of earnings Statement of Retained Earnings Price-Earnings (P/E) Ratio Multiplier applied to earnings per share to determine current value of common stock Some factors that influence P/E: Earnings and sales g