Foundations of Business

1. Foundations of Business Introduction to Financial Reporting The Balance Sheet Financial Application Assignment

2. Assets = Liabilities = Equity = What a business owns What a business owes Owners’ economic position in the business Basic Elements of Financial Statements

3. Assets = (What a company owns) A = Liabilities + Stockholders’ Equity L + OE Balance Sheet Equation (Funds to purchase what a company owns)

4. What a Company = owns A = Funds to purchase what a company owns L + OE Balance Sheet

5. Cash $8,690 Accounts Receivable 3,000 Inventory 3,500 Current Assets 15,190 Equipment 3,000 Total Assets $18,190 Accounts Payable $2,000 Wages Payable 500Current Liabilities 2,500 Notes Payable (L.T.) 5,000 Total Liabilities 7,500 Common Stock 10,000 Retained Earnings 690 Total Shareholders’ Equity 10,690 Total Liab. & SH Equity $18,190 Champ Creemee CompanyBalance Sheet(as of 12/31/10) Shows the company’s position on a fixed date; “snapshot” in time

6. Increase in something owned Increase in something owed Sale of Common stock Increase in Sales Increased Expenses associated with sales Increase in Net Income Pay dividend + Asset + Liability + Common Stock + Sales + Net Income + Expenses - Net Income + Retained Earnings - Retained Earnings How Transactions Impact Financial Statements

7. Owners’ Equity Example: Owning a house with a mortgage Value of the house (= asset):$300,000 - Mortgage (= liability): $200,000 Owners’ Equity: $100,000 Assets - Liabilities = Equity (House) - (Mortgage) = Equity $300,000 - $200,000 = $100,000

8. The 30 Companies in the Dow Jones Industrial Average (DJIA) Spring 2011

9. The Dow Jones Industrial Average (The DJIA or the “Dow”) = Dow Jones Source: Google Finance

10. The Dow vs. the S&P 500 (Standard & Poor’s 500) = Dow Jones = S&P 500 Source: Google Finance

11. 3 major market indexesthe DJIA, S&P 500, NASDAQ =NASDAQ Source: Google Finance

12. BP vs. Exxon Mobil vs. the S&P 500 Source: Google Finance Link to Financial Application Assignment

13. A major company event—Jan. 13, 2011Effect on company stock price? headline Merck clot drug seen unfit for stroke Top experimental drug found unfit for stroke patients * Vorapaxar acquired in Merck's buy of Schering-Plough * Dashed drug hopes pose challenge to new CEO * Merck shares drop 6.6 pct (Adds Merck drag on Dow, drug sales potential, stroke statistics) By Ransdell Pierson NEW YORK, Jan 13 (Reuters) - One of Merck & Co's (MRK) most important experimental drugs, blood clot preventer Vorapaxar, has been deemed inappropriate for patients who have suffered a stroke, dashing investor hopes and erasing nearly $8 billion from its market value. Vorapaxar, meant to prevent heart attacks and strokes or their recurrence, was considered a crown jewel in Merck's $41 billion acquisition in late 2009 of Schering-Plough Corp and deemed capable of generating annual sales of more than $3 billion. Jan. 13, 2011 Date, source Company announcement

14. Comparison chart: The impact of a company event on the company’s stock price Event: Announcement by Merck of Vorapaxar’s ineffectiveness

15. Effect of a company announcement on the company’s stock price MRK’s stock price underperforms the S&P500 slightly before the event but then experiences a sharp decline on the day of the event and continues to underperformthe S&P 500 for the next 5 days. Date of Announcement

16. Creating an Index Base value 2 Base value 1 Index = new value / base value * 100

17. Champ Creemee CompanyInventory 2 gallons of ice cream cones napkins