Using Excel, prepare a horizontal and a vertical analysis of the income statement for Amazon for the year ended December 31, 2018.   You should actually use the same excel file that you created for the balance sheet tools last week. (I have attached the completed Horizontal and Vertical BS and added the information that need to be used for the Horizontal and Vertical IS) There is no need to download this data again.  Identify three areas from the Vertical analysis and three areas from the Horizontal analysis that you think are worthy of additional analysis.  You can indicate these directly in the Excel spreadsheet.  You don’t have to complete an analysis of these items, just note why you think they need additional analysis.  Also, make sure to format your Excel tools in a professional way that should help with your analysis and in presenting your tools to another person or group of people.  Please see the videos that follow this assignment tab for help in preparing these tools.
Using the instruction that follow,  prepare ratio calculations using the Google Sheets http://tinyurl.com/xbrlratios  tool.  Your ratios should include Amazon as the main company, and you should select two new companies (other than Walmart and Kroger from the videos) as your comparable companies.  You will need to share the link to your Google Sheet (as noted in the video) to the assignment tab as your submission for the ratios.  Indicate three items that you think are worthy of additional analysis as a result of these calculations.  You can include these in the Google Spreadsheet.
Consolidated Balance Sheets – USD ($) $ in Millions
Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other
Total current assets
Property and equipment, net
Goodwill
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued expenses and other
Unearned revenue
Total current liabilities
Long-term debt
Other long-term liabilities
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized shares – 500 Issued and outstanding shares – none
Common stock, $0.01 par value: Authorized shares – 5,000 Issued shares – 507 and 514 Outstanding
shares – 484 and 491
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
Dec. 31, 2018
%Change
$Change
Dec. 31, 2017
$ 31,750
9,500
17,174
16,677
75,101
61,797
14,548
11,202
162,648
54.71%
-9.21%
7.02%
26.69%
24.76%
26.46%
8.97%
25.91%
23.87%
$ 11,228
$ (964)
$ 1,127
$ 3,513
$ 14,904
$ 12,931
$ 1,198
$ 2,305
$ 31,338
38,192
23,663
6,536
68,391
23,495
27,213
10.33%
30.23%
28.23%
18.15%
-5.04%
29.74%
$ 3,576
$ 5,493
$ 1,439
$ 10,508
$ (1,248)
$ 6,238
5
0.00%
(1,837)
26,791
(1,035)
19,625
43,549
$ 162,648
0.00%
25.26%
113.84%
127.25%
57.17%
23.87%
$0
$0
$ 5,402
$ (551)
$ 10,989
$ 15,840
$ 31,338
$ 20,522
10,464 Decrease in Marketable Securities
16,047
13,164
60,197
48,866
13,350
8,897
131,310
34,616
18,170
5,097
57,883 Overall increase in liabilities
24,743
20,975
5
(1,837)
21,389
(484) Over 100% increase in Accumulated other comprehen
8,636
27,709
$ 131,310
n Accumulated other comprehensive loss
Consolidated Balance Sheets – USD ($) $ in Millions
Current assets:
Cash and cash equivalents
Marketable securities
Inventories
Accounts receivable, net and other
Total current assets
Property and equipment, net
Goodwill
Other assets
Total assets
Current liabilities:
Accounts payable
Accrued expenses and other
Unearned revenue
Total current liabilities
Long-term debt
Other long-term liabilities
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $0.01 par value: Authorized shares – 500 Issued and outstanding shares – none
Common stock, $0.01 par value: Authorized shares – 5,000 Issued shares – 507 and 514 Outstanding
shares – 484 and 491
Treasury stock, at cost
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
Dec. 31, 2018
% Total Assets
Dec. 31, 2017
$ 31,750
9,500
17,174
16,677
75,101
61,797
14,548
11,202
162,648
19.52%
5.84%
10.56%
10.25%
46.17%
37.99%
8.94%
6.89%
100.00%
$ 20,522
10,464
16,047
13,164
60,197
48,866
13,350
8,897
131,310
38,192
23,663
6,536
68,391
23,495
27,213
23.48%
14.55%
4.02%
42.05%
14.45%
16.73%
34,616
18,170
5,097
57,883
24,743
20,975
5
0.00%
5
(1,837)
26,791
(1,035)
19,625
43,549
$ 162,648
-1.13%
16.47%
-0.64%
12.07%
26.77%
100.00%
(1,837)
21,389
(484)
8,636
27,709
$ 131,310
% Total Assets
The current assets held are a smaller percentage of tot
15.63%
7.97%
12.22% Decrease in inventory as a percentage total assets in 2
10.03%
45.84%
37.21%
10.17%
6.78%
100.00%
26.36%
13.84% Increase in Accrued expenses as a percentage of total
3.88%
44.08%
18.84%
15.97%
0.00%
-1.40%
16.29%
-0.37%
6.58%
21.10%
100.00%
xpenses as a percentage of total liabilities in 2018
Consolidated Statements of Comprehensive Income – USD ($) $ in Millions
Statement of Comprehensive Income [Abstract]
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $(49), $5, and $6
Net change in unrealized gains (losses) on available-for-sale debt securities:
Unrealized gains (losses), net of tax of $(12), $5, and $0
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax
of $0, $0, and $0
Net unrealized gains (losses) on available-for-sale debt securities
Total other comprehensive income (loss)
Comprehensive income
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
$ 10,073
$ 3,033
(538)
533
(17)
8
(39)
7
(9)
(547)
$ 9,526
(32)
501
$ 3,534
Dec. 31, 2016
$ 2,371
(279)
9
8
17
(262)
$ 2,109
Consolidated Statements of Comprehensive Income – USD ($) $ in Millions
Statement of Comprehensive Income [Abstract]
Net income
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax of $(49), $5, and $6
Net change in unrealized gains (losses) on available-for-sale debt securities:
Unrealized gains (losses), net of tax of $(12), $5, and $0
Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax
of $0, $0, and $0
Net unrealized gains (losses) on available-for-sale debt securities
Total other comprehensive income (loss)
Comprehensive income
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
$ 10,073
$ 3,033
(538)
533
(17)
8
(39)
7
(9)
(547)
$ 9,526
(32)
501
$ 3,534
Dec. 31, 2016
$ 2,371
(279)
9
8
17
(262)
$ 2,109
MBA613 Analytical Managerial Accounting
Ratios
Google Sheets & Hoovers
McAfee School of Business
Union University
Karen C. Miller, Ph.D. CPA
Porter Endowed Chair in Business
Professor of Accounting
Tools and Techniques
Key financial ratios
•
•
•
•
•
Liquidity ratios
Activity ratios
Leverage ratios
Profitability ratios
Market ratios
Copyright © 2016 Pearson Education, Inc.
5-2
Ratios in Google Sheets
Open or create a Google account
Go to drive.google.com
Sign into your Google account
Go to http://tinyurl.com/xbrlratios
Click File>Make a copy…
Rename your spreadsheet
MillerAmazonRatios
Copyright © 2016 Pearson Education, Inc.
5-3
Ratios in Google Sheets
Main Company Ticker Field – AMZN
Most Recent Year – 2018
Period – FY
Round – 1,000,000
Comparable 1 Ticker – WMT
Comparable 2 Ticker – KR
Copyright © 2016 Pearson Education, Inc.
5-4
Competitors from Hoovers
Go to http://uu.edu/library
Select Databases,E-books, and Media
Select Hoover’s Online
Search for a company – Amazon
Select Amazon.com, Inc.
Under Advanced, select Competitors
Copyright © 2016 Pearson Education, Inc.
5-5
Chapter 3
Income Statement and Statement
of Stockholders’ Equity
Copyright © 2016 Pearson Education, Inc.
3-1
Income Statement and Statement
of Stockholder’s Equity
•
•
Income Statement
?
Also called the statement of earnings
?
Presents a firm’s revenues, expenses, net
income, and earnings per share
Statement of Stockholder’s Equity
?
•
Link between balance sheet and income
statement
Annual reports include three years of income
statements and stockholder’s equity
information.
Copyright © 2016 Pearson Education, Inc.
3-2
The Income Statement
• Comes in two basic formats
?
Multiple-step format
?
Single-step format
• Multiple-step format should be
used for analysis purposes.
Copyright © 2016 Pearson Education, Inc.
3-3
The Income Statement
Multiple-step format
• Provides several intermediate
profit measures prior to the
amount of net earnings for the
period
?
Gross profit
?
Operating profit
?
Earnings before income tax
Copyright © 2016 Pearson Education, Inc.
3-4
The Income Statement
Copyright © 2016 Pearson Education, Inc.
3-5
The Income Statement
Single-step format
• Groups all items of revenue
together, then deducts all
categories of expense
Copyright © 2016 Pearson Education, Inc.
3-6
The Income Statement
Copyright © 2016 Pearson Education, Inc.
3-7
The Income Statement
• Regardless of format, certain
items must be disclosed
separately on an income
statement:
?
Discontinued operations
?
Extraordinary transactions
Copyright © 2016 Pearson Education, Inc.
3-8
The Income Statement
Comprehensive Income
• Change in equity during a period from
transactions, other events, and
circumstances related to nonowner sources.
•
Companies are required to report
comprehensive income in one of three ways:
?
on the face of its income statement
?
in a separate statement of comprehensive
income, or
?
in its statement of stockholders’ equity.
Copyright © 2016 Pearson Education, Inc.
3-9
The Income Statement
Common-Size Income Statement
• Useful analytical tool
?
Compare firms with different levels of
sales or total assets
?
Facilitate internal or structural
analysis
?
Evaluate trends
?
Make industry comparisons
Copyright © 2016 Pearson Education, Inc.
3-10
The Income Statement
Common-Size Income Statement
• Expresses each income statement
item as a percentage of net sales
• Shows the relative magnitude of
various expenses relative to sales,
the profit percentages, and the
relative importance of “other”
revenues and expenses
Copyright © 2016 Pearson Education, Inc.
3-11
The Income Statement
Copyright © 2016 Pearson Education, Inc.
3-12
The Income Statement
Net Sales
• Total sales revenue is shown net of
returns and allowances.
• A sales return is a cancellation of a sale.
• A sales allowance is a deduction from
the original sales invoice price.
• Sales are the major revenue source for
most companies.
Copyright © 2016 Pearson Education, Inc.
3-13
The Income Statement
Net Sales
• If a company’s sales are increasing (or
decreasing), it is important to
determine whether the change is a
result of price, volume, or a
combination of both.
• The reasons for sales growth (or
decline) are covered in the
Management Discussion and Analysis.
Copyright © 2016 Pearson Education, Inc.
3-14
The Income Statement
Net Sales
• “Real” (inflation adjusted) sales growth
• “Nominal” (as reported) sales growth
• An adjustment of the reported sales
figure with the Consumer Price Index
(or some other measure of general
inflation) will enable the analyst to
compare changes in real and nominal
terms.
Copyright © 2016 Pearson Education, Inc.
3-15
The Income Statement
Cost of Goods Sold
• Also called cost of sales
• Cost to seller of products or
services sold to customers
• Affected by cost flow assumption
used to value inventory
• Largest expense for many firms
Copyright © 2016 Pearson Education, Inc.
3-16
The Income Statement
Cost of Goods Sold
Percentage
• Ratio of cost of goods sold and net
sales
• Important for profit determination
Copyright © 2016 Pearson Education, Inc.
3-17
The Income Statement
Cost of Goods Sold Percentage – Sage Inc.
• Increased between 2014 and 2015
• MD&A explains that lower prices on
footwear have resulted in lower
margins.
Copyright © 2016 Pearson Education, Inc.
3-18
The Income Statement
Copyright © 2016 Pearson Education, Inc.
3-19
The Income Statement
Gross Profit
• Also called gross margin
• Difference between net sales and
cost of goods sold
• First step of profit measurement on
the multi-step income statement
• Key analytical tool in assessing
operating performance
Copyright © 2016 Pearson Education, Inc.
3-20
The Income Statement
Gross Profit Margin
•
Ratio of gross profit to net sales (expressed as a
percentage)
•
Complement of the cost of goods sold percentage
•
Firms want to maintain or increase gross profit
margin.
•
Remains relatively constant in stable industries
•
May change significantly in volatile industries
Copyright © 2016 Pearson Education, Inc.
3-21
The Income Statement
Gross Profit Margin – Sage Inc.
Copyright © 2016 Pearson Education, Inc.
3-22
The Income Statement
Gross Profit Margin –
Multiple Revenue Sources
• Each revenue is shown
separately.
• Each revenue line will show the
corresponding cost of goods sold
for each revenue source.
Copyright © 2016 Pearson Education, Inc.
3-23
The Income Statement
Copyright © 2016 Pearson Education, Inc.
3-24
The Income Statement
Operating Expense
• Includes areas in which
management discretion is exercised
• Has considerable impact on current
and future profitability
• Important to track trends, absolute
amounts, relationship to sales, and
relationship to industry competitors
Copyright © 2016 Pearson Education, Inc.
3-25
The Income Statement
Operating Expenses
•
•
•
•
•
Selling and administrative expenses
Advertising costs
Depreciation and amortization
Repairs and maintenance
Impairment charges
Copyright © 2016 Pearson Education, Inc.
3-26
The Income Statement
Operating Expenses – Selling and
Administrative Expenses
• Relate to the sale of products
or services
• Salaries, rent, insurance,
utilities, supplies, etc.
Copyright © 2016 Pearson Education, Inc.
3-27
The Income Statement
Operating Expenses –
Advertising Costs
• Are or should be a major expense
when marketing is an important
element of success
Copyright © 2016 Pearson Education, Inc.
3-28
The Income Statement
Advertising Costs for Sage Inc.
Sage Inc. spends 6 to 7 cents of
every sales dollar for advertising.
Copyright © 2016 Pearson Education, Inc.
3-29
The Income Statement
Operating Expenses – Lease Payments
• Costs associated with operating rentals
of leased facilities for retail outlets
• Note 3 to the financial statements
explains the agreements that apply to
the rental arrangements and presents a
schedule of minimum annual rental
commitments.
Copyright © 2016 Pearson Education, Inc.
3-30
The Income Statement
Operating Expenses – Depreciation
and Amortization
• Cost of assets other than land that
will benefit a business enterprise for
more than a year is allocated over
the asset’s service life.
• Cost allocation procedure is
determined by the nature of the
long-lived asset.
Copyright © 2016 Pearson Education, Inc.
3-31
The Income Statement
Operating Expenses – Depreciation and
Amortization
•
Depreciation is used to allocate the cost of
tangible fixed assets.
•
Amortization is an allocation process applied
to capital leases, leasehold improvements,
and cost expiration of intangible assets.
•
Depletion is an allocation process applied to
acquisition and development of natural
resources.
Copyright © 2016 Pearson Education, Inc.
3-32
The Income Statement
Percentage of Depreciation and Amortization
Expense for Sage Inc.
•
Decreased somewhat from 2015 to 2016
•
New assets were placed in service during
2016 for only a part of the year (rendering
less than full year’s depreciation and
amortization).
Copyright © 2016 Pearson Education, Inc.
3-33
The Income Statement
Operating Expenses – Repairs and
Maintenance
•
Annual costs of repairing and maintaining
PP&E
•
Should correspond to the level of investment
in capital equipment and to the age and
condition of fixed assets
•
•
Inadequate allowance can impair success.
Should be evaluated in relation to the firm’s
investments in fixed assets
Copyright © 2016 Pearson Education, Inc.
3-34
The Income Statement
Percentage of Repairs and Maintenance Expense
for Sage Inc.
•
•
Decreased from 2015 to 2016
•
Could be a choice to delay repairs in order to
increase operating profit in the short term
Could be a result of having newer fixed assets
needing fewer repairs
Copyright © 2016 Pearson Education, Inc.
3-35
The Income Statement
Operating Expenses – Impairment
Charges
• Recognized to record a decline in
value of a long-term asset
• May occur in connection with
goodwill
• Can also be recognized when asset
values of PP&E decrease below book
value
Copyright © 2016 Pearson Education, Inc.
3-36
The Income Statement
Operating Profit
•
Also called earnings before interest and taxes
(EBIT)
•
Second step of profit determination on the multistep income statement
•
Measures overall performance of operations
•
Provides a basis for assessing success of a firm
apart from financing and investing activities and
separate from tax considerations
•
Sales revenue less the expenses associated with
generating sales
Copyright © 2016 Pearson Education, Inc.
3-37
The Income Statement
Operating Profit Margin
• Ratio of operating profit to net
sales
Copyright © 2016 Pearson Education, Inc.
3-38
The Income Statement
Operating Profit Margin for Sage Inc.
•
Indicates that Sage Inc. strengthened its return
on operations in 2016 after a dip in 2015
•
Despite the percentage increase in cost of goods
sold, Sage Inc.’s percentage of selling and
administrative and advertising expenses
decreased enough to increase operating profit.
Copyright © 2016 Pearson Education, Inc.
3-39
The Income Statement
Other Income (Expense)
• Revenues and costs other than from
operations
?
Dividend and interest income
?
Interest expense
?
Investment gains (losses)
?
Equity earnings (loss)
?
Gains (losses) from sale of fixed assets
Copyright © 2016 Pearson Education, Inc.
3-40
The Income Statement
Other Income (Expense)
• Firms that carry debt and equity
securities classified as “trading
securities” report these
investments on the balance sheet
at market value with any
unrealized gains and losses
included in earnings.
Copyright © 2016 Pearson Education, Inc.
3-41
The Income Statement
Other Income (Expense)
•
In assessment of earning quality, the analyst
should consider the materiality and the variability
of the nonoperating items of income.
?
Gains and losses on the sale of major capital assets
?
Accounting changes
?
Extraordinary items
?
Investment income from temporary investments
in cash equivalents
?
Investment income recognized under the equity
method
Copyright © 2016 Pearson Education, Inc.
3-42
The Income Statement
Equity Earnings
• Two accounting methods for
investments in voting stock of other
companies
?
Equity method
?
Cost method
• Analysts should be aware of whether a
company uses the equity or cost
method.
Copyright © 2016 Pearson Education, Inc.
3-43
The Income Statement
Equity Earnings – Equity Method
•
Allows the investor proportionate recognition of
the investee’s net income, irrespective of the
payment or nonpayment of cash dividends
•
Should be used when the investor can exercise
significant influence over the investee’s operating
and financing policies
•
Fits accrual accounting requirements
•
Distorts earnings when income is recognized and
no cash may ever be received
Copyright © 2016 Pearson Education, Inc.
3-44
The Income Statement
Equity Earnings – Cost Method
• Investor recognizes investment income
only to the extent of any cash dividends
received.
• Allows recognition of investment
income only to the extent of any cash
dividends actually received
• Carries an investment account at cost
Copyright © 2016 Pearson Education, Inc.
3-45
The Income Statement
Example – Assume that company A
acquires exactly 20% of the voting
common stock of Company B for
$400,000. Company B reports $100,000
earnings for the year and pays $25,000 in
cash dividends.
For company A, income recognition in the
earnings statement and the noncurrent
investment account on the balance sheet
are different depending on the accounting
method.
Copyright © 2016 Pearson Education, Inc.
3-46
The Income Statement
Cost Method
• Allows recognition of investment
income only to the extent of any cash
dividends actually received:
$25,000 x 0.20 = $5,000
• Investment account is carried at cost.
Copyright © 2016 Pearson Education, Inc.
3-47
The Income Statement
Equity Method
• Permits the investor to count as
income the percentage interest in
the investee’s earnings.
Copyright © 2016 Pearson Education, Inc.
3-48
The Income Statement
Equity Method
•
Investment account is increased by the
amount of investment income recognized
and is reduced by the amount of cash
dividends received.
Copyright © 2016 Pearson Education, Inc.
3-49
The Income Statement
Equity Method
• Distorts earnings
• Income is recognized even though no
cash may ever be received.
• Assumes that the investor could
cause the investee to pay dividends
(which may not be true)
Copyright © 2016 Pearson Education, Inc.
3-50
The Income Statement
Earnings Before Income Taxes /
Effective Tax Rate
• Earnings before income taxes is the
profit recognized before the deduction
of income tax expense.
• Income taxes paid may differ from
income tax expense.
• Effective tax rate is the ratio of income
taxes to earnings before income taxes.
Copyright © 2016 Pearson Education, Inc.
3-51
The Income Statement
Sage Inc.’s Effective Tax Rate
Copyright © 2016 Pearson Education, Inc.
3-52
The Income Statement
Earnings Before Income Taxes /
Effective Tax Rate
• Noteworthy items that may affect the
effective tax rate are net operating
losses (NOLs) and foreign taxes.
• Users of financial statements need to
distinguish between earnings
increasing due to core operations
versus items such as tax rate
deductions.
Copyright © 2016 Pearson Education, Inc.
3-53
The Income Statement
Special Items
• Often one-time items that will
not recur in the future
• Discontinued operations
• Extraordinary gains and losses
Copyright © 2016 Pearson Education, Inc.
3-54
The Income Statement
Net Earnings
• Also called the “bottom line”
• Represents profit after
consideration of all revenue and
expense
Copyright © 2016 Pearson Education, Inc.
3-55
The Income Statement
Net Profit Margin
• Ratio of net earnings to net sales
(expressed as a percentage)
• Shows the percentage of profit
earned on every sales dollar
Copyright © 2016 Pearson Education, Inc.
3-56
The Income Statement
Net Profit Margin for Sage Inc.
Copyright © 2016 Pearson Education, Inc.
3-57
The Income Statement
Earnings per Common Share
•
Net earnings available to common
stockholders for the period divided by the
average number of common stock shares
outstanding
•
Firms with complex capital structure report
basic and diluted earnings per common
share.
•
Analysts should consider material changes in
the number of common stock shares
outstanding.
Copyright © 2016 Pearson Education, Inc.
3-58
The Income Statement
Comprehensive Income
• Reported in one of three ways
?
On the face of the income
statement
?
In a separate statement of
comprehensive income
?
In the statement of stockholders’
equity
Copyright © 2016 Pearson Education, Inc.
3-59
The Income Statement
Copyright © 2016 Pearson Education, Inc.
3-60
The Income Statement
Comprehensive Income
• Foreign currency translation
effects
• Unrealized gains and losses
• Additional pension liabilities
• Cash flow hedges
Copyright © 2016 Pearson Education, Inc.
3-61
The Income Statement
Comprehensive Income – Foreign
Currency Translation Effects
• Arise from changes in equity of
foreign subsidiaries
• Occur as a result of changes in
foreign currency exchange rates
Copyright © 2016 Pearson Education, Inc.
3-62
The Income Statement
Comprehensive Income –
Unrealized Gains and Losses
• Cumulative net unrealized
gains and losses
Copyright © 2016 Pearson Education, Inc.
3-63
The Income Statement
Comprehensive Income –
Additional Pension Liabilities
• Reported when accumulated
benefit obligation is greater than
the fair market value of plan
assets less the balance of the
accrued pension liability account
or plus the balance in the
deferred pension asset account
Copyright © 2016 Pearson Education, Inc.
3-64
The Income Statement
Comprehensive Income – Cash Flow
Hedges
• Derivatives designated as hedging the
exposure to variable cash flows of a
forecasted transaction
• Companies using cash flow hedges
must initially report any gain or loss in
other comprehensive income and
subsequently reclassify the amount into
earnings when the forecasted
transaction affects earnings.
Copyright © 2016 Pearson Education, Inc.
3-65
Statement of
Stockholders’ Equity
• Important link between the
balance sheet and the income
statement
• Documents changes in the
balance sheet equity accounts
• Annual reports include three
years of stockholders’ equity
information
Copyright © 2016 Pearson Education, Inc.
3-66
Statement of
Stockholders’ Equity
Copyright © 2016 Pearson Education, Inc.
3-67
Statement of
Stockholders’ Equity
•
•
Stock dividends
?
Issuance of additional shares of stock in
proportion to current ownership
?
Reduce retained earnings account
Stock splits
?
•
Used to lower the market price of shares to
make common stock more affordable
Reverse stock splits
?
Occurs when outstanding shares are
decreased
Copyright © 2016 Pearson Education, Inc.
3-68
Earnings Quality, Cash Flow,
and Segmental Accounting
• Assessment of the quality of
reported earnings is an
essential element of income
statement analysis.
• Cash flow from operations is a
key ingredient in analyzing
operating performance.
Copyright © 2016 Pearson Education, Inc.
3-69
Earnings Quality, Cash Flow,
and Segmental Accounting
• Segmental data include revenue,
operating profit or loss, assets,
depreciation and amortization,
and capital expenditures by
industry components.
• These disclosures facilitate
analysis of operating
performance and contribution by
each segment.
Copyright © 2016 Pearson Education, Inc.
3-70
Copyright Notice
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher.
Printed in the United States of America.
Copyright © 2016 Pearson Education, Inc.
3-71

Purchase answer to see full
attachment