What does the Income Statement list?
1. Revenue
2. Expenses
3. Taxes
What criteria must each item meet in order to be listed on the Income
... [Show More] Statement?
1. It must correspond to the period only shown on the income statement. A 20 year asset would NOT appear on the 1 year income statement
2. It must affect the company's taxes
ex: interest paid on debt is tax deductible, so it would appear on the income statement
What are the 4 main sections on the income statement?
1. Revenue and Cost of Goods Sold
2. Operating Expenses (not directly linked to product sales)
3. Other Income and Expenses
4. Taxes and Net Income
Revenue and Cost of Good Sold means..?
Rev is the value of the products/services sold in a period. COGS represents the expenses directly linked to the sale of the products/services
Operating Expenses
Items that are not directly linked to the product sales
Ex: Employee salary, rent, marketing, research, etc
Other Income and Expense
This goes between Operating Income and
Pre-Tax Income. Interest shows up here, as well as items such as Gains
and Losses when Assets are sold, Impairment Charges, Write-Downs, and
Taxes and Net Income
Net Income represents the company's "bottom
line" - how much in after-tax profits it has earned. Net Income = Revenue
- Expenses - Taxes.
What ALWAYS appears on the income statement?
1. Revenue
2. COGS
3.Operating Expenses
4. Depreciation
5. Amoritization
6. Stock Based Compensation
7. Gains
8. Interest
9.Write Downs
What does the balance sheet show?
The company's resources -
1.its Assets - and how it acquired those resources - 2.Liabilities & Equity - at a specific point in time.
The sheet must always remain in balance, both sides equaling each other
What does asset ALWAYS equal?
Assets=liabilities+equity
What is an asset?
An item that will
result in, directly or indirectly,
additional cash in the future.
What is a liability
An item that will
result in, directly or indirectly,
less cash in the future. Most
Liabilities are related to external
parties - payments owed to
suppliers, or borrowed money,
for example. Liabilities are used
to fund a business.
What is equity
Line items are similar to
Liabilities (used to fund a
business), but they refer to the
company's own internal
operations rather than external
parties.
Key Assets
1. Short term investment
2. Acc receiveable
3. Prepaid expense
4. Inventory
5. PP&E
6. Other Intangiable Assets
7. Goodwill
8. Cash
Short Term Investment
Less liquid than cash - Certificates of Deposit
(CDs) and money-market accounts and such.
Accounts Receivable
The company has recorded this as revenue on its
Income Statement but hasn't received it in cash yet. It's like an "IOU" from
a customer. And it will turn into cash when the customer pays.
Prepaid Expense
The company has paid these expenses in cash but hasn't
recorded them as expenses on the Income Statement yet.
Inventory
What they need to manufacture and sell products for a company like Apple, all the parts that go into iPhones and iPads.
PP&E
Factories, buildings, land, equipment, and anything else that will
last for over a year and contribute to the company's core business.
Other Intangiable Assets
Patents, trademarks, intellectual property...
usually the result of acquisitions. Similar to Goodwill, but this balance
amortizes (decreases) over time as these items "expire."
Goodwill
The premium that the company has paid over other companies'
Shareholders' Equity when acquiring them.
Key Liabilities
1. Revolver
2. Accounts payable
3.Accrued Expense
4.Deffered revenue
5. Defered tax liability
6. Long term debt
Revolver
Similar to a "credit card" for a company; it
borrows money as needed and must repay it quickly.
Accounts Payable
The company has recorded these
as expenses on the Income Statement, but hasn't yet paid them out in cash yet - used for one-time items with specific invoices, such as payment for legal services.
Accrued Expenses
The company has recorded these as expenses on the Income Statement, but hasn't yet paid them out in cash yet - used for recurring monthly items without invoices, such as employee wages,
utilities, and rent.
Deferred Revenue
The company has collected cash in advance from
customers for products/services yet to be delivered, and it will recognize
this as real revenue over time.
Deferred Tax Liability
The company has paid lower taxes than what it
really owes, and needs to make it up by paying additional taxes to the
government in the future.
Long term debt
Similar to a mortgage or a car loan: debt that is due and must be repaid in over a year's time.
What are the equity line items?
1. Common Stock and APIC ( Additonial paid in capital)
2. Treasury Stock
3.Retained Earnings
4. AOCI ( Accumulated other comprehensive income)
Common Stock and APIC
This represents the market value of shares at the time those shares were issued by the company. When a company goes public, the total dollar value of shares issued shows up here. This does not change even if the share price changes afterward.
Treasury Stock
This represents the cumulative value of shares the
company has repurchased from investors. This does not change even if the share price changes afterward.
Retained Earnings
This represents the company's saved up, after-tax
profits (minus any dividends it has issued). This is like the $200K you saved up, after-taxes, in our "personal Balance Sheet" example above.
AOCI
This is a section for
"miscellaneous saved-up income" - you see items like the effect of foreign currency exchange rate changes here, as well as unrealized gains and
losses on certain types of securities (i.e. if their values go up or down but the company has not yet sold them).
What does the cash flow statement track?
Changes over a period of time. (1 month or 1 year, etc)
What are the 2 reasons that the cash flow statement exists?
1. You may have shown non-cash revenue or expenses on the Income
Statement. These need to be ADJUSTED on the Cash Flow Statement to DETERMINE how your cash balance actually CHANGES
2. There may be additional cash inflows and outflows that have not appeared on the Income Statement. For example, Capital Expenditures
and Dividends are both real cash expenses. You need to factor these in to figure out how your cash balance really changes by.
What are the 3 main sections of the cash flow statement?
1. Cash Flow from Operations (CFO)
2. Cash Flow from Investing (CFI)
3.Cash Flow from Financing (CFF) [Show Less]