BA 202A Financial Reporting
Discussion 1 Exercise: Financial Statement Review
Find the figures for the Current Year and the Previous Year for the Three Firms in the Reader.
(One hint: There is something slightly unusual about Microsoft’s financial position).
Kellogg
Income Statement
Sears
Microsoft
99
98
99
98
99
98
What are the Revenues (sometimes called Net Sales) of the Firm?
6984.2
6762.1
41071
41575
19747
15262
What are the Cost of Goods Sold (or Cost of Sales) of the Firm?
3325.1
3282.6
27212
27444
2814
2460
What is the Interest Expense of the Firm?
118.8
119.5
1268
1423
0
0
What is the Income Tax to be paid by the Firm?
(sometimes referred to as Provision for Income Tax)
198.4
279.9
904
766
4106
2627
What is the Net Income of the Firm? (this is after tax and is
sometimes called Net Earnings)
338.3
502.6
1453
1048
7785
4490
Kellogg
Balance Sheet
Sears
Microsoft
99
98
99
98
99
98
What are the Total Assets of the Firm?
4808.7
5051.5
36954
37675
37156
22357
What are the Inventories of the Firm?
503.8
451.4
5069
4816
Can’t say
Can’t say
What are the Accounts Payable of the Firm?
305.3
386.9
6992
6732
874
759
What are the Total Current Liabilities of the Firm?
1587.8
1718.5
13701
14222
8718
5730
What is the Total Shareholders Equity?
813.2
889.8
6839
6066
28438
16627
Verify that the following accounting relationship holds for each balance sheet: Total Assets = Total Liabilities + Shareholder Equity
BA 202A Financial Reporting
Discussion 1 Exercise: Financial Statement Review
Kellogg
Statement of Cash Flows
Sears
Microsoft
99
98
99
98
99
98
What is the Net cash from Operating Activities?
795.2
719.7
3697
3890
10030
6880
What is the Net Cash from Investing Activities?
(244.2)
(398.0)
(983)
(1026)
(11191)
(7272)
14.2
(36.8)
234
137
1084
162
What is the Increase (Decrease) in Cash (and cash equivalents) for
the year?
Verify that Cash (and Cash Equivalents / Short-term Investments) amount for the year in the Cash Flow Statement is equal to the Cash
amount that appears in the Balance Sheet.
Notes to the financial statements
Accounting Policies are usually reported in the first note to the
Financial Statements. Within this note, review how the firm values
its Property and Equipment. Also review how the firm depreciates
the Property and Equipment.
Kellogg
99
Stated at cost less
accumulated
depreciation.
Depreciated using
straight line method.
Sears
99
Stated at cost less
accumulated
depreciation.
Depreciated using
straight line method
Microsoft
99
Stated at cost less
accumulated
depreciation.
Depreciated using
straight line method
BA 202A Financial Reporting
Discussion 1 Exercise: Financial Statement Review
Financial Statement Analysis
The Debt-Equity Ratio is calculated as follows:
Debt-Equity Ratio =
Total Liabilities
Total Liabilities + Shareholders Equity
Kellogg
Debt-Equity Ratio
99
Calculate the Debt-Equity Ratio for the two years
Has the ratio increased of decreased?
Sears
98
.831
.824
(83.1%)
(82.4%)
Increased
99
98
.815
.839
(81.5%)
(83.9%)
Decreased
Microsoft
99
98
.235
.256
(23.5%)
(25.6%)
Decreased
The Profit Margin Ratio (before interest effects) is calculated as follows:
Profit Margin Ratio (before interest effects) =
Net Income + Interest Expense
Net Sales (or Revenues)
Kellogg
Profit Margin Ratio
Calculate the Profit Margin Ratio (before interest effects).
Has the ratio increased of decreased?
99
Sears
98
.065
.092
(6.5%)
(9.2%)
Decreased
99
98
.066
.059
(6.6%)
(5.9%)
Increased
Microsoft
99
98
.394
.294
(39.4%)
(29.4%)
Increased
Final Question: What is the interesting aspect about Microsoft’s financial position?
Microsoft does not have any liabilities, aside from those associated with the operating of the business. For example, they have an accounts
payable amount but no long-term debts. Consequentially, Microsoft does not have any interest expenses.