Chapter 11 Corporate Annual Reports Corporate Annual Report The formal documentation of a company s operating and financial performance for a fiscal year o Contains a range of information that individual and institutional investors can read to understand the company s performance for the recent year o Available to all individual or institutional investors Fiscal Year One year of business operations generally ends December 31st but can also end at other times specifically the end of any quarter What is the purpose of Corporate Annual Reports o Regulations and Independent Auditors o Public Relations o To present the actual and audited financial results and other financial information for the most recent year What is included in the Corporate Annual Report o Independent Auditors Report Attest or verifies that the financial information contained in the annual report was prepared according to GAAP is correct and accurately portrays the financial condition of the company o Management Responsibilities Report The company s Chairman of the Board or CEO the CFO have to confirm that the financial information is accurate and correct by signing off on the financial information contained in the annual report o The 3 Main Financial Statements including notes to consolidated financial statements P L Statement Income Statement Measures financial performance over a period of time measures the operating success and profitability of a business Includes Revenue income and Expenses Balance Sheet Asset and Liabilities Statement Measures the net worth of a company or business at a specific time Assets Liabilities Member Equity Statement of Cash Flow Distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit o The Message to Shareholders Includes the company culture strategies for the future and the company s performance for the year Typically written by the Chairman of the Board of Directors the President of the company or the CEO of the company How are the operating and financial results in the Corporate Annual Report presented o By brand concept or division Chapter 12 Personal Financial Literacy Financial Literacy The ability to understand money to know and understand the management of money and to achieve financial and investment goals Managing Money Requires o Financial Knowledge o Discipline o Strategy o Goals Personal Financial Literacy o Personal Cash Flow The ability to maintain enough cash in your bank account or to increase the cash in your bank account so that you can cover all incurred living expenses o Personal Balance Sheet o Risk and Returns Individual Stocks Highest Risk Price Increase or Decrease potential 0 to 6 Dividends Mutual Funds Moderate Risk Price increase or decrease potential 0 to 6 Dividends Bonds Some Risk Debt obligation 3 to 7 Certificates of Deposit Lower Risk Fixed time period 2 to 5 Interest Savings Accounts Lowest Risk 1 to 2 The Rat Race earn o The term for when people spend more money than they o They are not able to control or save their money because they have continually overspent their income resulting in monthly expenses higher than their monthly income 6 Lessons for Financial Independence 1 The rich don t work for money the poor and middle class work for money the rich have money work for them 2 Teach financial literacy the ability to read numbers The rich buy assets The poor only have expenses The middle class buys liabilities that they think are assets 3 Mind your own businesses Invest your income in assets that will earn additional income for you 4 The history of taxes and the power of the corporation 5 The rich invent money They understand numbers develop investment strategies understand markets and understand the law 6 Work to learn Don t work for money Always increase your knowledge Be able to manage cash flow things and processes including time yourself and your family and people What are 4 ways company 401K accounts can grow 1 Employee contributions from paychecks 2 Matching company contributions 3 The earnings interest dividends and appreciation on the total 401K principal 4 Any forfeitures or unvested amounts of other employees leaving the 401K plan 6 Steps to Managing Personal Finances 1 Develop Financial Literacy o Actively seek to learn about investments o Understand your personal financial statements your Income Statement your Balance sheet and your Cash Flow o Learn how money works o Learn to live on 90 of your pay invest the other 10 2 Develop Specific Financial Goals and Strategies o Short term of a year or less o Long term from 3 to 5 to 10 years o Establish specific goals and time frames to get there o Invest in assets not liabilities or expenses 3 Discipline yourself to meet your financial objectives o Start early time is in your favor o Be consistent even if small amounts o Control your credit cars and their interest rates 4 The first step is to develop and grow your principle o Your principle is the amount you have to invest o Small amounts do not earn significant returns o Consistent savings will increase your principle 5 The second step is to invest in assets that will work for you o Earnings from investments are your second income o Diversity to spread and minimize risk o Invest to meet your goals and to be consistent with your strategy 6 Stay out of the Rat Race Individual Investment Accounts o Offer the advantage of ownership flexibility and control o More short term in nature and the money in these accounts is available for withdrawal without penalties to use when needed A key point of Financial literacy is to understand the importance of investing in Assets Review of Key Concepts Budgets Variances o Connect actual operations with financial needs and results o The result of actual performance is compared to expected o Determine how close a company comes to achieving their performance expected results Forecasting o Financial document that updates the operating budget o A very important management tool o Key management tools used to plan the details of daily operations o Volume The key to forecasting Provides the quantity of products or services consumed by the guest Variation Analysis o Identifying the difference between actual operating performance and established standards Review of Key Formulas Profits Revenue Expenses Profits Profit Margin Profit Sales Profit Margin COGS Cost of Goods Sold Cost of Goods included is the Sales