Week 37 (30.12.07)

Learn

• An audited financial statement package includes an:

1. Income Statement (Revenue - Expense = Net income (Profit/Loss))
2. Balance Sheet (Assets = Liabilities + Equity)
3. Retained Earnings Statement (return of shareholder's investment)
4. Cash Flow Statement (from operations, investment & financing)
5. Auditor's opinion & notes to the statements

• An "unqualified" auditor's opinion indicates that the statements were prepared in accordance with GAAP and that they fairly present the organization's financial position.

Ratios are a key component of financial statement analysis.

• Financial statement analysis should include assessments of the organization's liquidity, leverage, and profitability.
• The DuPont formula and Economic Value Added (EVA) are tools that can be used to improve the profitability of an organization.
• Du Pont formula to evaluate management performance.
• EVA and Cash Flow Return on Investment (CFROI) to determine if a segment of an organization is adding value to the business.

Unlearn

Did not know the complexity of annual report.

Relearn

Understand the various components of an annual report. I started to realize the importance and use of financial ratios to evaluate:

1. company's liquidity, leverage and profitability
2. company's performance as compared to its competitors'
3. company's performance compared with budgeted goals