Lesson 15: Financial Statements

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Lesson 15 Financial Statements
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Objectives

• Define the components of an income statement
• Identify the line items that make up a balance
  sheet
• Explain how financial statements can be used to
  evaluate past business and predict future
  performance
• Calculate equity based on assets and liabilities
• Compute revenue, net sales, gross margin, and net
  profit
• Identify different businesses based on financial
  statements

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Financial Statements

• Reports that give a detailed picture of a
  businesss financial status for a given period of
  time
• Detail changes in a businesss financial status
• Can tell an owner whether the business is on a
  successful or troublesome path

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Types of Financial Statements

• Two most popular types
• Income Statement
• Balance Sheet

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The Income Statement

• Report that outlines projected or actual revenue
  and projected or actual business expenses for a
  given period of time
• Profit Revenue (money brought in) minus
  Expenses (money going out)
• AKA PL (Profit and Loss)
• When someone references the bottom line its
  the bottom line of this statement PROFIT

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Parts of an Income Statement

• Gross sales
• For a new business an estimate of sales for a
  period
• For an established business amount of money
  made from selling store merchandise
• Net sales amount of money in sales after
  returns and discounts are subtracted
• Cost of Goods Sold the amount of money spent to
  buy the merchandise that is sold in the store

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• Gross Margin Net sales minus COGS, the amount
  of money used to pay for the expenses in a
  business
• Operating Expenses all of the expenses
  associated with running a business
• Rent, Repairs, Insurance
• Income amount of money left after Gross
  Margin minus Operating Expenses
• Taxes amount of money owed to federal, state,
  and local governments
• Federal income tax, social security, medicare,
  unemployment
• Net Income Income minus taxes is a positive
  number
• Net Loss Income minus taxes is a negative number

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The Balance Sheet

• Report that summarizes a businesss assets and
  liabilities and the owners equity
• Assets tangible items of value owned by a
  business
• Liabilities any debt a business has
• Owners Equity Assets minus liabilities

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Analysis of Past Performance

• Helps determine patterns or trends
• Can reveal areas of potential concern the become
  major problems
• Can help plan a successful future
• IE If you notice you have higher sales during
  summer months, you will know to increase
  inventory and staffing during those months

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Business Plans and Financial Statements

• Business plan map or blueprint for starting a
  new business
• Financial plans are a LARGE section of the
  business plan
• Includes projected income and expenses, cash
  flow, balance sheet

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Sample Financial Statements

• Go to Starbucks.com
• At the bottom of the website, click on Investor
  Relations
• On the right side of the site, click on Annual
  Reports
• Click on 2009 report
• Pages 1 and 40

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8. Key Math Concepts

• Revenue Unit Sales X Ave. Price per Unit
• Net Sales Total Sales Returns and Discounts
• Gross Margin Net Sales COGS
• Net Profit Total Revenue Total Expenses
• Equity on a Balance Sheet Assets - Liabilities