View
1.833
Download
2
Embed Size (px)
DESCRIPTION
Jimmy Gentry presents Day One of "Unlocking Financial Statements," a free, weeklong webinar series hosted by the Donald W. Reynolds National Center for Business Journalism. This training covers income statements, balance sheets, cash flows and tips for finding stories in corporate filings. For more information about free training for business journalists, please visit businessjournalism.org.
Citation preview
UnlockingFinancial Statements
Day 1
Schedule for Week Day 1: Introduction to financial
statements Day 2: Income statement Day 3: Balance sheet Day 4: Cash flows Day 5: Beyond the basics
Understanding Financial Statements2
Understanding Financial Statements3
Introduction
To Financial Statements
Understanding Financial Statements4
Types of Companies Public Private
Financial statements conforming to public company statements
Non-profits
Understanding Financial Statements5
Important Terms Unaudited Audited Accountants Certified Public Accountants (CPAs) GAAP, FASB, AICPA, PCAOB
Understanding Financial Statements6
Sarbanes-Oxley Act of 2002 Response to abuses with Enron and
WorldCom as catalysts New responsibilities and resources for
SEC Created PCAOB Major emphasis on “internal controls” More disclosure for public companies
Understanding Financial Statements7
Sarbanes-Oxley Act Analysts must disclose potential conflicts of
interest Limited types of services accounting firms
can provide to public company clients CEO, CFO attest to accuracy, completeness,
fairness of financial statements Rigorous penalties for fraud, other misdeeds
Understanding Financial Statements8
Public Company Accounting Oversight Board Created by SOX to oversee accounting SEC appoints members to five-year terms Five full-time members including a chairman Two must be or have been CPAs All members must be “financially literate” Began operating May 2003
Key SEC Documents 10-K 10-Q 8-K Proxy statement Prospectus
Understanding Financial Statements9
Annual Report (or 10-K) Strategy
Auditor’s report Management’s
discussion and analysis
Understanding Financial Statements10
Annual Report (or 10-K) Strategy (cont.)
Financial statements and footnotes
Management’s letter if annual report
Understanding Financial Statements11
Understanding Financial Statements12
Basic Auditor’s Report Independent auditor’s opinion on whether
financial statements are presented fairly in all material respects, in accordance with GAAP:
We looked at these statements They’re management’s responsibility; we’re
just here to express our opinion We followed the rules in our audits and here’s
what an audit involves In our opinion, the statements fairly present
the company’s position
Understanding Financial Statements13
Understanding Financial Statements14
Auditor’s Report by Category Clean or Unqualified Qualified Disclaimer Adverse
Understanding Financial Statements15
New Auditor’s Report Combines traditional report with internal
controls requirement of Sarbanes-Oxley Act
Understanding Financial Statements16
MD&A Must read it Often a source of good information and
insights Densely written SEC says it wants greater transparency
Understanding Financial Statements17
Goal of Accounting Record, classify and report financial
transactions. To provide managers across the organization with information that facilitates: Control of activities and expenditure Refinement of operational plans Accountability Reporting on project outcomes Writing of bids for new funds
Understanding Financial Statements18
Goal of Finance Maximize shareholder wealth as
reflected in market price of the stock Achieving this goal requires financial
manager to focus on economic profit, not accounting profit
Understanding Financial Statements19
Financial Decisions Long-term investment decisions
Capital budgeting Long-term financing decisions
Capital structure Working capital management decisions
Net working capital
Understanding Financial Statements20
Financial Decisions Investing decisions: Types of assets
firm wants to hold. Financing decisions: Acquisition of
funds needed to support long-term investments.
Understanding Financial Statements21
Generally Accepted Accounting Principles Guidelines based on theory and
practice Evolved over time Procedures, concepts and standards
Understanding Financial Statements22
GAAP: Key Points Periodicity Going concern Economic entity Monetary unit Full disclosure
Understanding Financial Statements23
GAAP: Key Points Historical cost Revenue realization Consistency Materiality Industry practices Conservatism
Understanding Financial Statements24
Cash or Operating Cycle Cash Purchase inventory Produce product Sell product Cash
Understanding Financial Statements25
Cash or Operating Cycle (cont.) “Cash”
Cash Receivables Debt
Inventory Raw materials Work in progress Finished goods
Understanding Financial Statements26
Cash or Operating Cycle (cont.) Sell product
Accounts receivable Cash
Cash Collect receivables as cash
Pay off payables Start over
Presented by:
James K. Gentry, Ph.D. Clyde M. Reed Teaching Professor School of Journalism and Mass Communications University of Kansas [email protected]
Understanding Financial Statements27