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
99
Sears
98
99
98
99
98
Microsoft
99
98
98
Microsoft
99
98
What are the Revenues (sometimes called Net Sales) of the Firm?
What are the Cost of Goods Sold (or Cost of Sales) of the Firm?
What is the Interest Expense of the Firm?
What is the Income Tax to be paid by the Firm?
(sometimes referred to as Provision for Income Tax)
What is the Net Income of the Firm? (this is after tax and is
sometimes called Net Earnings)
Kellogg
Balance Sheet
99
Sears
What are the Total Assets of the Firm?
What are the Inventories of the Firm?
What are the Accounts Payable of the Firm?
What are the Total Current Liabilities of the Firm?
What is the Total Shareholders Equity?
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
99
Sears
98
99
98
Microsoft
99
98
What is the Net cash from Operating Activities?
What is the Net Cash from Investing Activities?
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
Sears
99
Microsoft
99
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
Sears
98
99
98
Microsoft
99
98
Calculate the Debt-Equity Ratio for the two years
Has the ratio increased of 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
99
Calculate the Profit Margin Ratio (before interest effects).
Has the ratio increased of decreased?
Final Question: What is the interesting aspect about Microsoft’s financial position?
Sears
98
99
98
Microsoft
99
98