From Chapter 1

A. The Annual Report

1. About past performance & future prospects

2.Form 10-K ? ?(SEC: Securities and Exchange Commission) ?publicly-traded stock

3.Core part: financial statement

remark: also contains a letter from management, management discussion & analysis(MD&A), footnotes, independent auditor's report, a statement of management's responsibility for preparation of the financial statements,...

B.Financial Statements

1.Income statement

? ? summary of expenses & revenue ? ?specific period of time

2.Statement of owner's equity

? ? changes in the owner's equity ? ?specific period of time

3.Balance sheet

? ??list of the assets, liabilities, and owner’s equity?as of a specific date

? ? picture-like

4.Statement of cash flows

? ? summary of the cash receipts and disbursements ? ?specific period of time

remark:income statement:net income -> retained earnings:the statement of owner's equity ->equity: balance sheet:cash ->?Statement of cash flows

C.Statement of owner's equity

remark: title part includes 1) name of entity 2)title of statement 3)specific period of time 4)unit of measure

1. Three types of business organization:???

? ? a. Proprietorship

? ? ? ? Ad: Ease in organizing; Low cost of organizing;

? ? ? ? Dis: Limited source of financial resources; Unlimited liability;

? ? b.Partnership

? ? ? ? Ad:More financial resources; More management skill;

? ? ? ? Dis:Unlimited liability

? ? ? ? remark:Special ordinary partnership?

? ? c.Corporation

? ? ? ? Ad:obtain large amounts of resources by issuing stocks

? ? ? ? Dis:Double taxation

? ? ? ? remark: shareholders , common stock

? ? Characteristics:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Prop. ? ? ? ? ? ? ? Part. ? ? ? ? ? ?Corp.?

? ? Business entity ? ? ? ? ? ? ? ?Y ? ? ? ? ? ? ? ? ? ? ? Y ? ? ? ? ? ? ? ? Y

? ? Legal entity ? ? ? ? ? ? ? ? ? ? ?N ? ? ? ? ? ? ? ? ? ? ? N ? ? ? ? ? ? ? ? Y

? ? Limited liability ? ? ? ? ? ? ? ?N* ? ? ? ? ? ? ? ? ? ? ?N* ? ? ? ? ? ? ? Y

? ? Unlimited life ? ? ? ? ? ? ? ? ? N ? ? ? ? ? ? ? ? ? ? ? ?N ? ? ? ? ? ? ? ? Y

? ? Business taxed ? ? ? ? ? ? ? ?N ? ? ? ? ? ? ? ? ? ? ? ?N ? ? ? ? ? ? ? ? Y

? ? One owner allowed ? ? ? ? Y ? ? ? ? ? ? ? ? ? ? ? ? N ? ? ? ? ? ? ? ? Y

remark: 合伙制可通過股權(quán)轉(zhuǎn)讓來延長生命

*Proprietorships and partnerships that are set up as LLCs provide limited liability

2.Accounting Differences Between Proprietorship,?Partnership, and Corporation

Differences lies in Reporting Owners’ Equity

a.Proprietorships and Partnerships

? ??Owners’ equities = “Capital”

? ? Owners’ equities are recorded in the capital account

b.Corporations

? ? Paid-in capital=total capital investment=par value+paid in capital in excess of par value

? ? Retained Earnings=income-dividend

D.Balance Sheet

remark: title part includes 1) name of entity 2)title of statement 3)specific date 4)unit of measure

remark:Assets are listed by their ease of?conversion into cash

B/S vs I/S

E.Statement of cash flows

remark: title part includes 1) name of entity 2)title of statement 3)specific period of time 4)unit of measure

1.Cash Flows from Operating Activities—Day-to-day activities.?Cash flows directly related to earning income.

2.Cash Flows from Investing Activities—Buying and selling long-term assets.?Cash flows related to the acquisition or sale of productive assets.

3.Cash Flows from Financing Activities—Raising fund and repayment.?Cash flows from or to investors or creditors.

from chapter 2

A. Popular Ratios

1.Earnings Per Share (EPS) ? ?每股收益

? ? EPS=Net Income/Weighted-average number of common shares outstanding

Used For:Predicting future EPS+Making investment decisions

remark:net income->during a specific period

remark:EPS tells investors how much of a period’s net income “belongs to” each share of common stock

remark:Only?financial ratio required on the financial statements

remark:?

? ? Shares: Preferred(between liability and equity; classified as equity) vs Common

? ? ? ? ? ? ? ? ? Outstanding(held by shareholders)

????????????????????? Basic EPS vs Diluted EPS

2.Price-Earning (P-E) Ratio ? ? 市盈率

P-E Ratio=Market price per share of common stock/Earnings per share of common stock

Remark:The?P-E ratio?measures how much the investing public is willing to pay for a chance to share the company’s potential earnings

Conceptually, a higher than normal ratio suggests investors predict the company’s net income will grow

Factually, a higher ratio has proven to be good and bad news

Used for: IPO pricing, Investment criteria (growth potential?bubble?)

3.Dividend-Yeild Ratio? ? 紅利收益率比例

Dividend-Yield Ratio=Common dividends per share/Current market price of stock

remark:The?dividend-yield ratio?gauges dividend payouts

Shows relationship between cash dividends and current market price

Investors who seek regular cash returns of their investments pay particular attention to dividend-yield ratios

Growth companies typically have conservative dividend policies

4.Dividend-Payout Ratio ? ?紅利支付率比例

Dividend-Payout Ratio=Common dividends per share/Earnings per share

Remark:The?dividend-payout ratio?shows what?proportion of net income a company elects to pay in cash dividends to its shareholders?

Many companies elect to pay a reasonably constant dollar amount in dividends, even if this means variations in its dividend-payout ratio

from Chapter 4

Format of Financial Statement

A. Balance Sheet

1. classified balance sheet:

? ? Assets are classified into: current asset & non-current(long term) asset

? ? Liabilities are classified into: current liability & non-current(long term) liability

Current assets?will be used up or be converted into cash in a year

Non-current assets?will be used up or be converted into cash after more than one year

Current liabilities?will be paid in one year (or within the operating cycle if longer)

Non-current liabilities?will be paid after one year

Working capital?is the excess of current assets over current liabilities

2. current ratio

Liquidity?is a company’s ability to pay its immediate financial obligations with cash and near-cash assets

The?current ratio?evaluates a company’s liquidity

current ratio= total current asset/ total current liability

The?quick ratio?removes?Inventory?(and other less liquid assets such as?Prepaid Expenses) from the numerator

3. formats of balance sheet

report form & account form

The?report format?presents the accounts vertically

The?account format?puts the assets at the left and liabilities and owners’ equity at the right

Either format is acceptable

B. Income statement format

single-step & multiple step

multiple step:

GS/GM(sales-COGS<product cost>)-operating expense<period cost>=operating income

operating income-other revenue&expense=income before taxes

income before taxes-taxes=income

C. Profitability Evaluation Ratios

1. Gross Profit Margin

gross profit margin=gross profit/sales

Gross profit percentages vary greatly by industry

2. Return on Sales (ROS)

ROS=net income/ sales

gauges a company’s ability to control the level of all its expenses relative to the level of its sales

The ROS percentage tends to vary by industry

3.Return on Common Stockholders’ Equity (ROE or ROCE)

ROE=net income/ average common stockholder's equity

compares net income with invested capital

4. return on asset (ROA)

ROA=net income/ average total asset

es net income with invested capital as measured by average total assets

?Measures how effectively those assets generate profits