Chapter 1
Chapter 1
Chapter 1
Business Activities
- The four major activities of the
company: planning, financing, investing,
and operating. It is important to
understand each of these major business
activities before we can effectively
analyze a company’s financial Financial Statement- measures a
statements. company’s financial performance over a
period of time, typically a year or a
Planning Activities- A company’s goals quarter
and objectives are captured in a business Balance Sheet
plan that describes the company’s Total Investing =
purpose, strategy, and tactics for its Total Financing= Creditor Financing
activities. + Owner Financing
Financing Activities- refer to methods
that companies use to raise the money
to pay for these needs.
Investing activities- refer to a
company’s acquisition and maintenance Income Statement
of investments Revenues – Cost of goods sold =
for purposes of selling products and Gross Profit
providing services, and for the purpose Gross profit – Operating expenses =
of investing Operating/Net Profit
excess cash.
Operating Activities- Operating Statement of Cash Flows
activities are a company’s primary source
The statement of cash flows reports cash
of earnings.
inflows and outflows separately for a
Financial Statements Reflect
company’s operating, investing, and
Business Activities
financing activities over a period of time.
Additional Information- Financial The most important information
statements are not the sole output of a often revealed from comparative
financial reporting system. Additional financial statement analysis is
information about a company is also trend.
communicated. can reveal the direction, speed,
and extent of a trend.
Management’s Discussion and
Analysis (MD&A).
Common-Size Financial Statement
Management Report.
Analysis
Auditor Report.
Explanatory Notes. useful in understanding the
Supplementary Information. internal makeup of financial
Proxy Statements. statements.
the distribution of financing
across current liabilities,
noncurrent liabilities, and
equity.
useful for intercompany
comparisons because
financial statements of
different companies.
Equity Valuation