Question

1) Explain in your own words your understanding of the three main financial statements and give an example of each using a company. eg this is Dell's Income Statement?

Answer 1

Answer :

The three financial statements are: (1) the Income Statement, (2) the Balance Sheet, and (3) the Cash Flow Statement

1) Income Statement :- The first place an investor or analyst will look is the income statement. The income statement shows the performance of the business throughout each period, displaying sales revenue at the very top. The statement then deducts the cost of goods sold (COGS) to find gross profit. From there, the gross profit is affected by other operating expenses and income, depending on the nature of the business, to reach net income at the bottom – “the bottom line” for the business.

2) Balance Sheet :- The balance sheet displays the company’s assets, liabilities, and shareholders’ equity. As commonly known, assets must equal liabilities plus equity. The asset section begins with cash and equivalents, which should equal the balance found at the end of the cash flow statement. The balance sheet then displays the changes in each major account. Net income from the income statement flows into the balance sheet as a change in retained earnings (adjusted for payment of dividends).

3) Cash Flow Statement :-The cash flow statement then takes net income and adjusts it for any non-cash expenses. Then, using changes in the balance sheet, usage and receipt of cash is found. The cash flow statement displays the change in cash per period, as well as the beginning balance and ending balance of cash.

Financial Statement of Apple Computers
Income Statement	2013	2014	2015
Revenue	102,007	118,086	131,345
Cost of goods sold	39,023	48,004	49,123
Gross profit	62,984	70,082	82,222
Expenses
Salaries & benefits	26,427	22,658	23,872
Rent & overhead	10,963	10,125	10,087
Depreciation	19,500	18,150	17,205
Interest	2,500	2,500	1,500
Total Expenses	59,390	53,433	52,664
Earning Before tax	3,594	16,649	29,558
Taxes	1,120	4,858	8,483
Net Earnings	2,474	11,791	21,075
Balance Sheet
Assets
Cash	167,971	181,210	183,715
Accounts Receivable	5,100	5,904	6,567
Inventory	7,805	9,601	9,825
Property & Equipment	45,500	42,350	40,145
Total assets	226,376	239,065	240,252
Liability
Accounts Payable	3,902	4,800	4,912
Debts	50,000	50,000	30,000
Total Liability	53,902	54,800	34,912
Shareholders Equity
Equity Capital	170,000	170,000	170,000
Retained Earning	2,474	14,265	35,340
Shareholders Equity	172,474	184,265	205,340
Total Liability & Shareholders	226,376	239,065	240,252
Cash Flow Statement
Operating Cash Flow
Net Earnings	2,474	11,791	21,075
Add: Depreciation	19,500	18,150	17,205
Less: Change in working capital	9,003	1,702	775
Cash From Operation	12,971	28,239	37,505
Investing Cash Flow
Investment in Property & Equipment	15,000	15,000	15,000
Cash Flow From Investing activity	15,000	15,000	15,000
Financing Cash Flow
Issuance(Repayment)of debts	-	-	(20,000)
Issuance (repayment of equity)	170,000	-	-
Cash Flow from financing activity	170,000	-	(20,000)
Net Increase/decrease in cash	167,971	13,239	2,505
Opening cash balance	-	167,971	181,210
Closing cash balance	167,971	181,210	183,715