F02 Financial Statements

CONTENTS
FINANCIAL STATEMENTS
ACCOUNTS........................................................................2
Types of Accounts.......................................................................2
Account Classification.................................................................3
STATEMENT OF FINANCIAL POSITION................................4

Balance Sheet Overview.............................................................4
Balance Sheet Formula........................................................................................ 5
Balance Sheet Format.......................................................................................... 7
Asset Classification..................................................................... 8
Current Assets................................................................................................... 10
Long-Term Investments...................................................................................... 11
Fixed Assets....................................................................................................... 12
Intangible Assets............................................................................................... 13
Intangible Assets............................................................................................... 14
Accounting for Liabilities..........................................................16

Liability Classifications....................................................................................... 17
Shareholders Equity................................................................18
STATEMENT OF OPERATIONS...........................................22
Income Statement Use.............................................................23
Income versus Cash Flow.................................................................................. 24
Income Statement Components...............................................26

Expense Categories........................................................................................... 28
Simple Format..........................................................................29
STATEMENT OF RETAINED EARNINGS..............................33

LEARNING OBJECTIVES...................................................34
EXAMPLE TEST QUESTION..............................................35

ET 2.0 h
ACCOUNTS
Types of Accounts
Nominal (Temporary) accounts closed at the
end of the period (income statement accounts)
Revenues enhancement of assets or settlement of
liabilities due to delivering goods or rendering
services
Expenses use of assets or incurrence of liabilities
to deliver goods or provide services
Real (Permanent) accounts that remain after

period end (balance sheet accounts)
Assets probable future economic benefit obtained
or controlled by the entity
Liabilities probable future sacrifice of economic
benefit
Owners Equity residual interest in assets after
deducting liabilities
Financial Statements
2
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ACCOUNTS
Account Classification
Account
s
Temporary
Permanent
(Income
Revenue
Operating
Revenue
Expenses
Operating
Expenses
(Balance
Assets
Current Assets
L-T
Investments
Fixed Assets
(PP&E)
Intangible
Equities
Liabilities
(Debtors
Owners
Equity
Current Liabilities
L-T Debt
Other L-T
Contribute
d Equity
Earned
Equity
Common Stock
Preferred Stock
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Retained
STATEMENT OF FINANCIAL POSITION

Balance Sheet Overview
Purpose: indicate the financial position, including what the company

owns and owes.
Time: relates to a single
rather than a period of time.
point in time,
Two Parts:
Assets probable future benefits
Equities indicate how assets were acquired, two types:
Debtors equity, known as liabilities
Stockholders equity
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Balance Sheet Formula
The balance sheet is also
called the Statement of
Financial Position.
Based on formula:
In fact, that is the preferred

term used by international
Both sides of the

equation should be the
Assets = Liabilities + Owners Equity
The balance sheet is used to evaluate:

Liquidity time needed to change an asset into cash or to cancel
a liability
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Solvency ability to pay long-term debts as they mature

Financial Flexibility ability to alter cash flows (quicken cash
flow, delay payment)
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Balance Sheet (from an Individuals Aspect)
What you
own
What you
owe
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Source: J. P. Morgan Asset

Management 3/31/10
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Balance Sheet Format
Balance Sheet
XXX Corporation
At Dec. 31, 20XX
Assets
Current
Assets
Investments
Fixed Assets
Intangible
Assets
Other Assets
Total Assets
Liabilities
17,000
Current Liabilities
1,000
80,000
1,500
Deferred Taxes
Long-Term Liabilities
Total Liabilities
500
100,00
0
8,000
2,000
30,000
40,000
Owners Equity
Capital Stock
Retained Earnings
Total Equity
40,000
20,000
60,000
Total Liabilities and

Equity
100,00
0
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The balance sheet explains how assets were obtained:

CONTRIBUTIO
N BY OWNERS
(Capital
BORROWI
NG
(Liabilities
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REINVESTING
INCOME
(Retained
11

Asset Classification
ASSETS
Asset Probable future economic benefit obtained and

controlled by the entity
Assets are recorded if:
You own
Rights are acquired
it!
Possesses future economic benefits
It has
value!
Concept Statement 6-26 to 31
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Asset Classifications
Five Major Categories

Current Assets - Expected to be realized in cash, sold, or
used up within one year
The
Long-Term Investments - Securities or property held longer
than one year for the purpose of enhancing income
Fixed Assets - Property, plant and equipment used in
business
Intangibles - Lack physical existence
Other assets do not fit in above categories
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Current Assets
Current Assets Expected to be realized in cash, sold, or used up

within one year.
Examples:
Cash coin, currency, and funds on deposit in the bank; most liquid
asset
Accounts Receivable claims against customers and others for
money, goods, or services (amounts owed to us)
Prepaid Expenses cash paid to others before receipt of goods or
performance of services
Inventories raw materials, work in process, or finished goods held
for further manufacturing or sale
Short-Term Investments securities held for less than a year,
usually for cash management purposes
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Long-Term Investments
Long-Term Investments Securities or property held longer than one

year for the purpose of
enhancing income, or
control
Note: These investments are not used for cash management.
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Fixed Assets
Fixed Assets - Property, plant and equipment used in business

(does not include property held for investment).
Examples:
Land
Buildings
Furniture
Equipment
Construction in Progress
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Intangible Assets
Intangibles Non-financial assets with no physical substance

Trademarks word, symbol, or phrase that identifies a particular company or product
Patents government granted right to use, manufacture, and sell a product or process (20
years in US)
Copyrights government granted right to utilize the creation of an author, artist, or
musician
Franchise Rights right to sell certain products or services
Goodwill excess cost over the fair market value of identifiable assets; occurs only when
buying another company.
TREATMENT OF INTANGIBLES
Internally
Created
Purchased
Limited
Life
Capitalize and amortize

over useful life;
evaluate for impairment
Expense as
incurred*
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Indefinite
Life
annually
Capitalize and evaluate
for impairment annually
(do not amortize)
Expense as
incurred*
*except direct costs such as legal costs
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Intangible Assets
Rank
Brand
Brand Value
Brand
Revenue
Company
Advertising
1
2
Apple
Google
$154.1 B
$82.5 B
$233.7 B
$68.5 B
$1.8 B
$3.2 B
Microsoft
$75.2 B
$87.6 B
$1.9 B
Cola
$58.5 B
$21.9 B
$4 B
Facebook
$52.6 B
$17.4 B
$281 M
Toyota
$42.1 B
$165.1 B
$3.6 B
IBM
$41.4 B
$81.7 B
$1.3 B
Disney
$39.5 B
$28 B
$2.6 B
d's
$39.1 B
$82.7 B
$719 M
10
GE
$36.7 B
$92.3 B
Source: Forbes http://www.forbes.com/powerful-brands/list/#tab:rank
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The Most Important Assets
Discussion Questions:
What is your favorite asset?
What are the most important assets for:
Manufacturers?
Service corporations?
Pharmaceuticals?
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Accounting for Liabilities
Liability probable future sacrifice of an economic benefit

Qualities of a Liability:
An asset or service must be transferred in the future
The entity cannot avoid the transfer
The event causing the obligation has already occurred
Concepts Statement 6-36 to 40
I borrowed $500 last

week.
I need to pay it back in a
year.
I cant get out of it!
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STATEMENT OF FINANCIAL
POSITION
Liability
Classifications
Current
current
Liabilities Due within year and paid by

assets.
Example: amounts owed to suppliers (called accounts payable).
Working Capital = Current Assets minus Current Liabilities

Negative working capital indicates the
company cannot meet cash needs
Long-Term Debt Financial payments to be made after one

year.
Example: mortgage on a building.
Other Long-Term Liabilities Obligations not considered

current liabilities or long term debt
Example: deferred income taxes and retirement obligations
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Shareholders Equity
Residual interests after obligations to creditors are met

Equity Accounts:
Common Stock represents voting ownership in corporation
Additional Paid In Capital
that exceeds par
For analysis
purposes, APIC is
treated the same
common stock
Preferred Stock optional form of ownership, usually

without voting rights
Retained Earnings cumulative net income that has not
been paid in dividends
Treasury Stock stock repurchased by the company (contraequity)
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Discussion Question: What is the best way to finance assets?

Debt?
Owners equity?
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INTEL
CASE STUDY
CORPORATION
Consolidated Balance Sheets
December 27, 2014, and December 28, 2013 (In Millions)
2014
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trading assets
Accounts receivable, net of allowance for doubtful accounts of $38 ($38 in 2013)
Inventories
Deferred tax assets
Other current assets
2,561
2,430
9,063
4,427
4,273
1,958
3,018
2013
5,674
5,972
8,441
3,582
4,172
2,594
1,649
Total current assets
27,730
32,084
Property, plant and equipment, net

Long-Term Investments
Intangible assets
Other long-term assets
33,238
9,120
15,307
6,561
31,428
7,694
15,663
5,489
Total assets
Liabilities, temporary equity, and stockholders equity
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91,956
92,358
Current liabilities:
Short-term debt
Accounts payable
Accrued compensation and benefits
Accrued advertising
Deferred income
Other accrued liabilities
1,604
2,748
3,475
1,092
2,205
4,895
281
2,969
3,123
1,021
2,096
4,078
Total current liabilities
16,019
13,568
Long-term debt
Long-term deferred tax liabilities
Other long-term liabilities
Temporary equity
Stockholders equity:
Common stock,
Accumulated other comprehensive income (loss)
Retained earnings
12,107
3,775
3,278
912
13,165
4,397
2,972
21,781
666
33,418
21,536
1,243
35,477
Total stockholders equity
55,865
58,256
Total liabilities, temporary equity, and stockholders equity
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91,956
92,358
STEM
Corp
Test Your Balance Sheet Knowledge

1.
What are the primary assets of Intel? Which of these assets most relate to
the corporate mission?
Property, Plant, and Equipment;

Intangibles (Patents and Goodwill), and
Investments and trading assets
Investments and trading assets probably do not relate to the corporate mission
of producing computing technology.
2.
Are the assets financed primarily by debt or equity?
Equity [55,865 > (91,956 55,865)] Liabilities

Equity [55,865 > 36,091] Liabilities
Equity is the primary means of finance.
3.
Is Intel growing? What evidence supports your claim?
Maybe. The important asset of property, plant, and equipment increased. But,
total assets and intangibles decreased.
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CASE STUDY

Mystery Corp.
Four companies:
Accenture
Chevron
Merck
WalMart
Consulting
Energy
Pharmaceu
tical
Retail
Who does the balance sheet belong to?

Myste Myster
ry
y Corp
Corp 1
2
Cash
4.5%
Myste Myste
ry
ry
Corp
Corp
3
4
27.4%
4.9% 15.9%
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Receivables
Inventories
Other Current Assets
Current Assets
Property, Plant, and
Equipment
Goodwill
Patent
Other Assets
Total Assets
3.3%
22.1%
1.1%
31.1%
57.2%
21.2%
0.0%
17.9%
66.5%
3.9%
6.3%
2.4%
2.3%
15.9%
68.9%
6.7%
5.7%
5.3%
33.8%
13.3%
8.9%
12.8%
1.7%
0.0%
0.0%
0.0%
2.8%
16.8% 13.6%
100.0 100.0%
100.0
%
%
Walm Accent Chevr
art
ure
on
13.2%
20.8%
18.9%
100.0
%
Merc
k
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STATEMENT OF OPERATIONS
Income Statement
Income Statement Use
Income Statement Format
Income Statement Example
The Big Picture

What is the goal of a corporation?
What is the role of income in that
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goal?
31
Income Statement Use
The income statement:

evaluates past performance
predicts future performance
assesses certainty of future cash flow
Compare to the balance sheet:
Balance sheet: a specific point in time (on Dec 31)
Income statement: over a period of time (from Jan 1 to Dec
31)
Concept Statement 8
Income
Statement
Balance Sheet
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Jan 1
32
Dec 31
Income versus Cash Flow
Why not use cash flow instead of income?

Information about enterprise earnings provides a better
indication of enterprise performance than information about
current cash receipts and payments. ( Concept Statement 7)
Income measures performance!

Research has shown: Income is better than short-term
cash flow at predicting long-term cash flow.
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Ways Income Can Differ
From Operating Cash Flow
A corporation had the following events:

Collected $150,000 from customers for goods to be delivered next
year.
In December, postponed a payment of an expense of $100,000 by
asking for 30 more days in credit terms.
What effect did these actions have on cash flow?

Collection of cash increases cash flow.
Postponing payments do not effect cash flow.
What effect did these actions have on net income?

Collection of cash does not affect net income.
Expenses decrease net income.
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Income Statement Components

Revenue enhancement of assets or settlement of liabilities due to:
delivering goods, or
rendering services
Expenses use of assets or incurrence of liabilities related to
delivering goods or providing services
Income difference between revenue and expenses
Based on the formula:
Revenue Expenses = Net Income

Concepts Statement 6-79
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Income Statement Components

Terminology
Common
Terms
Revenue
Expense
Income
1
2
3
Alternative
Terms
International
Terms
Slang
Sales1
Turnover
Gross
Top Line
Cost
Provision2
Burden3
Eat
Earnings
Bottom Line
Cleared
Net
Profit
Usually refers to goods rather than services

Provision for taxes is becoming popular on US financial statements.
Usually refers to manufacturing overhead costs
We had a record
gross, but costs
ate into our bottom
line.
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Expense Categories
EXPENSE
EXAMPLE
Common Expenses
Cost of Goods Sold
Selling Expenses
General and
Administrative
Expenses
Interest Expense
Income Tax Expense
Direct Labor
Direct Material
Machinery Depreciation
Factory Overhead
Shipping to Customer
Advertising
Depreciation on Sales Vehicles
Manager Salary
Office Supplies
Accounting
Legal
Headquarters
Fees for Use of Debt
Profit-Based Government
Payments (Essentially 35% Flat
Rate in US)
Less Common
Expenses
Asset Impairment
Obsolete Equipment
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Loss on Investment
Non-Controlling Interest
(AKA: Minority Interest)
Decrease in Equity Value

Amount Owed to Partial Owners
of Subsidiaries
Net of Tax
Expenses
Discontinued
Operations
Extraordinary Losses
Spin-Offs, Sale of a Division

Infrequent and Unusual Items
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Simple Format
XXX CORPORATION
INCOME STATEMENT
For the period ending December 31, 20XX
Sales
Cost of Goods Sold
Gross Profit
$100,000
- 60,000
40,000
Selling, General, and Administrative

Expenses
Income from Operations
- 25,000
Tax Expense
Net Income
- 5,000
$10,000
Earnings per Share (2,000 shares
15,000
$5.00
outstanding)
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INTEL
CASE STUDY
CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
2014
(In Millions, Except Per Share Amounts)
Net revenue
Cost of goods sold
Gross profit
55,870
20,261
35,609
2013
$
52,708
21,187
31,521
2012
$
53,341
20,190
33,151
Research and development

Marketing, general and administrative
Other expenses
Operating expenses
11,537
8,136
589
20,262
10,611
8,088
531
19,230
10,148
8,057
308
18,513
Operating income
Gains (losses) on equity investments, net
Interest and other, net
Income before taxes
Tax expense
15,347
411
43
15,801
4,097
12,291
471
(151)
12,611
2,991
14,638
141
94
14,873
3,868
Net income
11,704
9,620
11,005
Basic earnings per share of common stock
2.39
1.94
2.20
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Diluted earnings per share of common stock

Weighted average shares of common stock outstanding:
Basic
Diluted
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2.31
1.89
2.13
4,901
4,970
4,996
5,056
5,097
5,160
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What is the difference between Gross Profit, Operating Income, and Net Income?
Gross Profit = Sales Cost of Goods Sold
Operating Income = Gross Profit Operating Expenses
Net Income = Operating Income Non-Operating Expenses - Tax
What is the biggest expense of Intel?
The cost of goods sold to customers (amounts utilized to manufacture
products).
Did revenue increase from 2013 to 2014?
Yes, (55,870 52,708) / 52,708 = 6.00% growth
Was Intel profitable over the past three years?
(in millions)
Sales
Net Income
Net Income as
a percent of
Sales
2014
$55,870
$11,704
2013
$52,708
$9,620
2012
$53,341
$11,005
20.95%
18.25%
20.63%
AKA:
Profit
Margin
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CASE STUDY
PFIZER, INC.
Consolidated Statements of Income
Pfizer Inc. and Subsidiary Companies
(MILLIONS, EXCEPT PER COMMON SHARE DATA)

Revenues
Costs and expenses:
Cost of sales
Selling and administrative expenses
Research and development expenses
Amortization of intangible assets
Restructuring charges
Other (income)/deductionsnet
Income from continuing operations before taxes
Income tax expense
Income from continuing operations
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Year Ended December 31,

2014
2013
2012
49,605 $
51,584 $
54,657
9,577
14,097
8,393
4,039
250
1,009
12,240
3,120
9,119
9,586
14,355
6,678
4,599
1,182
(532)
15,716
4,306
11,410
45
9,821
15,171
7,482
5,109
1,810
4,022
11,242
2,221
9,021
Discontinued operationsnet of tax

Net income before noncontrolling interests
Less: Net income attributable to noncontrolling interests
Net income attributable to Pfizer Inc.
Earnings per common share:
Net income attributable to Pfizer Inc. common shareholders
Weighted-average shares
Cash dividends paid per common share
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9,168
32
9,135
1.44
6,346
1.04
10,662
22,072
69
22,003
5,577
14,598
28
14,570
3.23
1.96
6,813
0.96
7,442
0.88
46
STATEMENT OF RETAINED EARNINGS

Link between the Financial Statements
Retained Earnings cumulative net income that has not been paid in
dividends
Beginning Retained
Earnings
+ Net Income (or Loss)
- Dividends__________
Ending Retained
Earnings
Pfizer, Inc.
Statement of Retained
Earnings
For the Year Ending 2014
2013 Retained Earnings

- Dividends
69,732
+
9,135
- 6,692
72,176
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What percent of income is paid in dividends?

Dividends / Income = 6,692 / 9,135 = 73.3%
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LEARNING OBJECTIVES
At the end
of this note
section, you
should be
able to:
THEORY
Identify the difference between nominal and real accounts.
Define assets, liabilities, and owners equity
Understand the classifications of assets (5), liabilities (3), and
stockholders equity.
Know how balance sheets and income statements are used to make
decisions.
Know the formulas related to the balance sheet, income statement,
and statement of retained earnings.
APPLICATION
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Analyze the changes in balance sheets and income statements

between years.
What do I
need to
know for
the
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EXAMPLE TEST QUESTION
Income Statement - Valero

VALERO ENERGY CORPORATION
(Millions of Dollars, Except per Share Amounts)
Year Ended December 31,
Operating revenues
Costs and expenses:
Cost of sales
Operating expenses:
Refining
Retail
Ethanol
General and administrative expenses
Depreciation and amortization expense
Total costs and expenses
Operating income
Gain on disposition of CST Brands, Inc.
Other income, net
Interest and debt expense, net of capitalized interest
Income from continuing operations before tax expense
Income tax expense
Income from continuing operations
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2014
130,844
2013
138,074
118,141
127,316
3,900
487
724
1,690
124,942
?
47
(397
5,552
1,777
3,775
3,710
226
387
758
1,720
134,117
?
325
59
(365
3,976
1,254
2,722
51
Income (loss) from discontinued operations

Net income
Less: income attributable to noncontrolling interests
Net income attributable to Valero stockholders
Net income attributable to Valero stockholders:
Continuing operations
Discontinued operations
Total
Earnings per common share:
Continuing operations
Discontinued operations
Total
Weighted-average shares outstanding (in millions)
Dividends per common share
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$
$
$
$
$
$
(64
3,711
81
3,630
3,694
(64
3,630
7.00
(0.12
?
526
1.05
)
$
$
)
$
$
)
$
$
6
2,728
8
2,720
2,714
6
2,720
4.98
0.01
?
542
0.85
52
For the year 2014:

1. What is Valeros gross profit? $__12,703 million_____
$130,844 $118,141 = $12,703
2. What is operating income? $____5,902 million______
$130,844 124,942 = 5,902
3. What was the percentage increase in net income for 2014 (00.0%)?
__36.0___%
($3,711 - $2,728) / $2,728 = 36.0%
4. What is the approximate tax rate (00.0%)? _____32.0_______%
1,777 / 5,552 = 32.0%
5. What are earnings per share ($00.00)? $_____6.90__________
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$3,630 / 526 shs = $6.90 per share
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Balance Sheet - Valero

VALERO ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
2014
Current assets:
Cash and temporary cash investments
Receivables, net
Inventories
Income taxes receivable
Deferred income taxes
Prepaid expenses and other
3,689
5,879
6,623
97
162
164
2013
$
4,292
8,751
5,758
72
266
138
16,614
19,277
35,933
(9,198)
33,933
(8,226)
Property, plant, and equipment, net
26,735
25,707
Deferred charges and other assets, net
2,201
2,276
Property, plant, and equipment, at cost

Accumulated depreciation
Total assets
LIABILITIES AND EQUITY

Current portion of debt and capital lease obligations
Accounts payable
Accrued expenses
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45,550
606
6,760
596
55
47,260
303
9,931
522
Taxes other than income taxes

Income taxes payable
1,209
809
9,980
1,345
773
13,123
Debt, less current portion
5,780
6,261
Deferred income taxes
6,607
6,601
Other long-term liabilities
1,939
1,329
7
7,116
(8,125)
22,046
(367)
7
7,187
(7,054)
18,970
350
20,677
567
19,460
486
21,244
19,946
Commitments and contingencies

Equity:
Valero Energy Corporation stockholders equity:
Common stock
Additional paid-in capital
Treasury stock
Retained earnings
Total Valero Energy Corporation stockholders equity
Noncontrolling interests
Total equity
Total liabilities and equity
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45,550
56
47,260
1.
What are the primary assets of Valero?
More than half of Valeros assets are property, plan, and equipment. They are a
capital intensive company. They also maintain a significant inventory.
2.
Valeros debt to equity ratio is 1.14 [(45,550 21,244) /21,244]. They finance
assets with slightly more debt.
3.
What are the sources of debt for Valero? Who were the likely lenders?
Most of Veleros debt is in the form of short-term payables. That amount is

likely owed to suppliers of inventory. They also have performed actions that
will cause $6,607 million in taxes in the future.
4.
Is Valero growing? What evidence supports your claim?
While property, plant, and equipment (their most important asset) has grown
slightly, total assets have decreased over the last year. Valero is likely slowing
in growth.
True or False
T F 5. Most of Valeros debt is short term. (LT liabilities slightly exceed
current liabilities)
WPasewark 2017
57
T F 6. Valero owes its customers approximately $6,760 million in product.

(Accounts payable are likely owed to suppliers, product owed to customers
is known as unearned revenue)
T F 7. During 2014, Valero increased their amount of long-term debt owed to
banks. (the amount of long-term debt decreased from $6,261 to $5,780)
T F 8. Valero had positive net income during 2014. (retained earnings
increased; that can only occur due to net income)
Wal-Mart Stores,
Inc.
Consolidated Balance
Sheets
(Amounts in millions)
ASSETS
Current assets:
Cash and cash equivalents
Receivables, net
Inventories
Prepaid expenses and other
Property and equipment:
Property and equipment
Less accumulated depreciation
Property and equipment, net
Goodwill
Other assets and deferred charges
Total assets
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST, AND EQUITY
Short-term borrowings
WPasewark 2017
2015
2014
$9,135
6,778
45,141
2,224
63,278
$7,281
6,677
44,858
2,369
61,185
183,634
(65,979)
116,655
178,678
(60,771)
117,907
18,102
5,671
$203,706
19,510
6,149
$204,751
$1,592
$7,670
58
Accounts payable
Accrued liabilities
Long-term debt due within one year
Other current assets
38,410
19,152
4,810
1,308
65,272
37,415
18,793
4,103
1,364
69,345
Long-term debt
Long-term obligations under capital leases
Deferred income taxes and other
Redeemable noncontrolling interest
41,086
2,606
8,805
41,771
2,788
8,017
1,491
2,785
85,777
(7,168)
81,394
4,543
85,937
$203,706
2,685
76,566
(2,996)
76,255
5,084
81,339
$204,751
Equity:
Common stock
Retained earnings
Total Walmart shareholders' equity
Nonredeemable noncontrolling interest
Total equity
Total liabilities, redeemable noncontrolling interest, and equity
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59
1.
What are the primary assets of WalMart?
Property and Equipment, and Inventory

2.
Liabilities. (85,937 < [203,706 85,937)]

3.
Is WalMart growing? What evidence supports your claim?
Maybe, total assets and PP&E decreased, but inventory increased over the last
year. WalMart is in the business of selling inventory and is in process of
converting from brick and mortar to an electronic platform.
4.
Is WalMart profitable? What evidence supports your claim?
Yes, retained earnings increased.
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60
Statement of Operations Home Depot
CONSOLIDATED STATEMENT OF EARNINGS

The Home Depot, Inc. and Subsidiaries
AMOUNTS IN MILLIONS, EXCEPT SHARE DATA
NET SALES
Cost of Sales
GROSS PROFIT
Operating Expenses:
Selling, General and Administrative
Depreciation and Amortization
Total Operating Expenses
OPERATING INCOME
2014
$78,812
51,422
27,390
2013
$74,754
48,912
25,842
2012
$70,395
46,133
24,262
16,597
1,627
18,224
16,508
1,568
18,076
16,028
1,573
17,601
9,166
7,766
6,661
Interest and Other (Income) Expense:
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61
Interest and Investment Income

Interest Expense
Other
Interest and Other, net
EARNINGS BEFORE INCOME TAXES
Provision for Income Taxes
NET EARNINGS
Weighted Average Common Shares

BASIC EARNINGS PER SHARE
(12)
711
699
8,467
(20)
632
(67)
545
7,221
(13)
606
593
6,068
3,082
$5,385
2,686
$4,535
2,185
$3,883
1,425
$3.78
1,499
$3.03
1,562
$2.49
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62
1. What is the difference between Gross Profit, Operating Income, and Net
Income?
Gross Profit = Sales Cost of Goods Sold
Operating Income = Gross Profit Operating Expenses
Net Income = Operating Income Non-Operating Expenses - Tax
2. What is the biggest expense of Home Depot?
The cost of goods sold to customers (amounts paid to suppliers).
3. Did revenue increase from 2013 to 2014?
Yes, (78,812 74,754) / 74,754 = 5.43% growth
4. Was Home Depot profitable over the past three years?
(in millions)
Sales
Net Income
Net Income as
a percent of
Sales (Profit
Margin)
2014
$78,812
$5,385
2013
$74,754
$4,535
2012
$70,395
$3,883
6.83%
6.07%
5.52%
5. How much dividends did Home Depot pay in 2014?
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63

- Dividends
20,038
+ 5,385
- 2,243
23,180
6. What percent of income is paid in dividends?

Dividends / Income = 2,243 / 5,385 = 41.7%
WPasewark 2017
64

F02 Financial Statements

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F02 Financial Statements

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CONTENTS

STATEMENT OF FINANCIAL POSITION................................4

Accounting for Liabilities..........................................................16

Income Statement Components...............................................26

STATEMENT OF RETAINED EARNINGS..............................33

EXAMPLE TEST QUESTION..............................................35

Real (Permanent) accounts that remain after

STATEMENT OF FINANCIAL POSITION

Purpose: indicate the financial position, including what the company

STATEMENT OF FINANCIAL POSITION

In fact, that is the preferred

Both sides of the

Assets = Liabilities + Owners Equity

The balance sheet is used to evaluate:

Solvency ability to pay long-term debts as they mature

STATEMENT OF FINANCIAL POSITION

Balance Sheet (from an Individuals Aspect)

Source: J. P. Morgan Asset

STATEMENT OF FINANCIAL POSITION

Total Liabilities and

The balance sheet explains how assets were obtained:

STATEMENT OF FINANCIAL POSITION

Asset Probable future economic benefit obtained and

Possesses future economic benefits

Concept Statement 6-26 to 31

STATEMENT OF FINANCIAL POSITION

Five Major Categories

STATEMENT OF FINANCIAL POSITION

Current Assets Expected to be realized in cash, sold, or used up

STATEMENT OF FINANCIAL POSITION

Long-Term Investments Securities or property held longer than one

STATEMENT OF FINANCIAL POSITION

Fixed Assets - Property, plant and equipment used in business

STATEMENT OF FINANCIAL POSITION

Intangibles Non-financial assets with no physical substance

Capitalize and amortize

*except direct costs such as legal costs

STATEMENT OF FINANCIAL POSITION

Source: Forbes http://www.forbes.com/powerful-brands/list/#tab:rank

STATEMENT OF FINANCIAL POSITION

STATEMENT OF FINANCIAL POSITION

Liability probable future sacrifice of an economic benefit

I borrowed $500 last

Liabilities Due within year and paid by

Example: amounts owed to suppliers (called accounts payable).

Working Capital = Current Assets minus Current Liabilities

Long-Term Debt Financial payments to be made after one

Other Long-Term Liabilities Obligations not considered

STATEMENT OF FINANCIAL POSITION

Residual interests after obligations to creditors are met

Preferred Stock optional form of ownership, usually

Discussion Question: What is the best way to finance assets?

Consolidated Balance Sheets

December 27, 2014, and December 28, 2013 (In Millions)

Total current assets

Property, plant and equipment, net

Liabilities, temporary equity, and stockholders equity

Total current liabilities

Total stockholders equity

Total liabilities, temporary equity, and stockholders equity

Test Your Balance Sheet Knowledge

Property, Plant, and Equipment;

Are the assets financed primarily by debt or equity?