FIN 301 1st Edition Lecture 5 Notes are based off of power points Financial Statements I II III IV V VI What is GAAP a They have different ways for making money b They make financial statements comparable c Key all viewed comparable d The importance of GAAP is the standpoint in the financial world All the principles in accounting Basic accounting concepts The uses of financial statements a Administrative control to make sure the governing body can look at the financial statements b Resource allocation where you re putting money The balance sheet identity a Middle one year b Tangible PP E c Intangible Goodwill d L T Debt Bonds e Common Equity Previous sales of stock reinvested retained earnings f Book value purchase price depreciation g Assets 21 634 h Liabilities Stockholder s Equity 21 634 Notes to financial statements a Depreciation of Assets straight line basis shows better profit b Compute taxes using accelerated basis shows lower taxes c Two separate books i Taxes ACC DEP and investors SL DEP The income statement a Revenue definition of profit b Depreciation why noncash c Period costs what is SG A Basic accounting concepts what do earnings measure a Key Issue both can be subjective b First you look at their top line to see if they have growth in their sales c Second look at gross profit d Third take out SG A to get operating profit operating profit EBIT e Fourth subtract interest to get net profit f Big negative in 2009 because they paid too much g Wall street looks at diluted Earning Per Share on a per share basis they are diluted for the number of shares given to exec These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute VII VIII IX Notes to financial statements a Key Metric same store sales growth b How much do they grow their sales on a year to year basis What are deferred taxes a There is a difference between what s recorded taxes annually b The difference goes to the balance sheet and is recorded as differed taxes in liabilities Case Study a Jan 1 cash 1000 5 month Profit 2 500 3 500 Where did it go Increase in inventory 2 250 750 1 500 Increase in A R 3 000 1 000 2 000 0 b Basic thing to learn in finance