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• What are financial statements?


  Reports compiled by businesses that detail the company's financial activities and health.
• Who benefits from financial statements?

  Governments, investors, executives, and lenders benefit from financial statements.
• How is financial data used by parties interested in a business?

  To analyze the company's performance and make predictions about its stock price.
• What is one of the most important sources of reliable financial data?

  The annual report, which contains the firm's financial statements.
• What does an annual report contain?

  • Basic financial statements
  • Management's analysis of past operations
  • Future prospects
• What are the main components of financial statements?

  1. Balance Sheet
  2. Income Statement
  3. Statement of Cash Flows
  4. Statement of Stockholders Equity
  5. Statement of Comprehensive Income
  6. Notes to Financial Statements
• What does a balance sheet provide an overview of?

  A company's assets, liabilities, and shareholders' equity at a specific time and date.
• What is working capital?

  The current assets of the company.
• What is net working capital?

  Current assets after deducting the current liabilities.
• What does net operating working capital represent?

  Operating current assets after deducting operating current liabilities.
• How does the income statement differ from the balance sheet?

  The income statement covers a range of time, while the balance sheet is at a specific point in time.
• What does the income statement provide an overview of?

  Revenues, expenses, net income, and earnings per share during a specific time period.
• What is operating income (EBIT)?


  Earnings from operations before interest and taxes.
• What is depreciation?


  The charge to reflect the cost of an asset depleted in the production process, which is not a cash outlay.
• What is amortization?


  A noncash charge similar to depreciation that represents a decline in value of an intangible asset.
• What does EBITDA stand for?

  Earnings before interest, taxes, depreciation, and amortization.
• What does the statement of cash flows show?

  How cash is earned and spent by a company, affecting the balance sheet and income statement.
• What are the three types of activities reported in the statement of cash flows?

  1. Operating Activities
  2. Investing Activities
  3. Financing Activities
• What do operating activities include in the cash flow statement?

  Sources and uses of cash from running the business and selling its products or services.
• What do investing activities include in the cash flow statement?

  Sources and uses of cash from a company's investments in its long-term future, including changes in equipment and assets.
• What do financing activities include in the cash flow statement?

  Cash from investors or banks, as well as cash paid to shareholders.
• What does the statement of changes in equity show?


  By how much a firm’s equity changed during the year and why this change occurred.
• How does the statement of changes in equity relate to the balance sheet?

  The ending balance on the change of equity statement equals the total equity reported on the balance sheet for the same period.
• What is beginning equity?


  The equity at the end of the last period that rolls to the start of the next period.
• What is net income in the context of the statement of changes in equity?

  The amount of income the company earned in a given period, recognized as equity in the company.
• What are dividends in the context of the statement of changes in equity?


  The amount of money paid out to shareholders from profits.
• What does other comprehensive income represent?

  The period-over-period change in other comprehensive income, which may be an addition or subtraction from equity.
• What does the statement of other comprehensive income summarize?

  Standard net income while incorporating changes in other comprehensive income (OCI).
• What are examples of transactions reported on the statement of comprehensive income?

  Net income, unrealized gains or losses from debt securities, derivative instruments, foreign currency, and retirement programs.
• What do financial statements provide for a company's external evaluation?

  A ticket to the external evaluation of a company's financial performance.
• How does the balance sheet report a company's financial health?

  By showing its liquidity and solvency.
• What does the income statement report?

  It reports a company's profitability.
• How does the statement of cash flow relate to the balance sheet and income statement?


  It ties these two together by tracking sources and uses of cash.
• What do the financial statements together provide?

  A picture of a business's financial standing used by management, investors, governments, and lenders.
• What is the purpose of the financial statements?


  To provide a comprehensive overview of a company's financial activities and health.
• How much of the total earnings shall a shareholder owning 25,000 common shares receive if the net income available to common shareholders is 280,000?


  $\frac{25,000}{120,000} \times 280,000 =$$58,333.33$
• How much of the total dividends shall a shareholder owning 70,000 common shares receive if Company A has a net income of P10 million and a retention ratio of 65%?

  $Dividends =$$Net Income \times (1 - Retention Ratio) =$$10,000,000 \times (1 - 0.65) =$$3,500,000$
• How much of the total book value shall a shareholder owning 5,000 common shares receive if Kineme Company’s equity balances include 6% cumulative preferred stocks of 400,000, common stocks of 800,000, and retained earnings of 1,024,000?

  $Book Value per Share =$$\frac{Total Equity}{Total Shares} =$$\frac{400,000 + 800,000 + 1,024,000}{20,000} =$$106.20$