Financial Statement Framework Financial Performance

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Financial Statement FrameworkFinancial
Performance Financial Statements

• Professor Doug Cerf
• Donald Bren Graduate School of
• Environmental Science and Management
• Corporate Environmental Management (ESM 281)
• Winter 2009

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• Financial Statement Framework is the primary
  channel for communicating information about the
  economics of a business

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Objectives

• Goal Obtain the tools to evaluate the financial
  performance of a business, project or division
• Use financial statements to understand financial
  performance.
• the main point is the ability to understand how
  to evaluate and communicate financial
  performance.
• the main point is not the preparation of the
  statements
• applies to a continuum of entities
• division of a company
• start up company
• partnership
• corporation

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Lecture on the financial statement framework

• Evaluate Wal-Mart. (WMT) financial performance on
  Google Finance
• Financial Statement Framework (the big picture)
• Statement of Financial Position (Balance Sheet)
• Company assets and claims to those assets
• At a point in time
• Statement of Operations (Income Statement)
• Revenue less expenses (costs necessary to
  generate revenue)
• For a period of time
• Statement of Cash Flows
• Inflows and outflows of cash related to the
  operating, financing and investing activities of
  the entity
• For a period of time
• Financial reporting concepts

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Maria Hernandez Case

• Understand the financial condition of a start-up
  enterprise.
• Has Maria made a profit? Does it matter?
• Why has the cash level declined significantly?
• Should Maria be worried?
• What are the risks?

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Analyze financial condition

• Two phases
• Phase 1 Prior to beginning of operations
• Prior to July 1, 2004
• Go through the transactions prior to July1 to
  prove balance sheet shown on page 1 of case.
• Prepare a Statement of Cash Flows
• Phase 2 First two months of operation
• July 1, 2004 through August 31, 2004
• Prepare all three statements

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Prior to start of operations

• As a class
• prove balance sheet
• prepare statement of cash flows
• She raised 50,000 and has 12,000 left and she
  has not started her business
• What does she have to show for it?

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Financial condition at the end of two months of
operations

• Prepare the financial condition for the first two
  months of operations 7/1/04 8/31/04
• Transaction by transaction
• Students work on this in groups for 15 minutes if
  necessary
• Entire class prepare statements on the board

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How is Maria doing?

• Maria had services rendered of 47,000
• Maria received a salary
• From operation of the business
• Assets have increased by about 10,300.
• Liabilities have increased by 5,700.
• Profit 4,600
• Why has the cash level declined significantly?
• Started at 50,000 and now is 6,600 2 months
  later
• Should Maria be worried?
• What are the risks?
• Solvency-Can she pay salaries next month?
• Can she borrow money?
• Collection risk (from customers)