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Accounting Week 48: Financial Statements, Cash Flow Statement, and Financial Indicators

Learn about financial statements, cash flow statements, and how to analyze a company's performance using financial indicators. Includes tutorials and practice problems.

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Accounting Week 48: Financial Statements, Cash Flow Statement, and Financial Indicators

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  1. Accounting 2016-2017P 6011P0148 / PE 6011P0150 Tutorials week 48 Amsterdam Business School

  2. So far…. • Financial statements and relationship between them • Recording economic transactions (journal entry method) • Understanding account types • Getting familiar with economic transactions related to the balance sheet (assets, liabilities and owner’s equity) Accounting Week 48

  3. Today • Understanding the structure of the income statement • Understanding the goal and structure of the cash flow statement • Prepare a cash flow statement with the direct and indirect method • Using indicators based on information from financial statements to analyze the performance of a company • Rounding up the financial accounting part of the course Accounting Week 48

  4. Contents • CH9:P 9.20, P9.24, P9.26, • CH3: P3.19, C3.24 • CH11: P11.14 • Summary Accounting Week 48

  5. P9.20 (page 348) • We practice the structure of the income statement • We get familiar with the income related to various activities • We learn how the net income (which goes to retained earnings at the end of the year and also the first item in an indirect cash-flow statement) is calculated Accounting Week 48

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  9. Cash-flow statement • Methods • Direct (P9.26) • Indirect (P9.23) • Structure The main structure (three parts) is the same for both methods, the approach to calculate those items are different Accounting Week 48

  10. How to prepare a cash-flow statement with the direct method? • Record all the economic transactions • Select those transactions which involve the “Cash” account • Identify where the transactions related to changes in “cash” go in the cash-flow statement Accounting Week 48

  11. Direct Method Accounting Week 48

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  13. Indirect method (P9.24 page 349-50) Accounting Week 48

  14. Accounting Week 48

  15. Financial indicators C3.24 • Practicing calculating Accounting Week 48

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  21. 3. Price/earnings ratio = ($41.96 market value per common share / $2.59 diluted earnings per common share outstanding) = 16.2 4. Dividend yield = ($1.248 dividends declared per share / $41.96 market value per common share) = 3.0% 5. Dividend payout ratio = ($1.248 dividends per common share / $2.59 diluted earnings per common share outstanding) = 48.2% Accounting Week 48

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