6. The Classified Balance Sheet Illustration 2-2

7. The Classified Balance Sheet Illustration 2-2

13. The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. Property, Plant, and Equipment Illustration 2-5

17. The Classified Balance Sheet SO 1 Identify the sections of a classified balance sheet. Current Liabilities Illustration 2-7

22. Using the Financial Statements Illustration: Best Buy has current assets of $9,081 million and current liabilities of $6,301 million. We can determine a relationship between these accounts by dividing current assets by current liabilities, to get 1.44. The alternative means of expression are: Percentage: Current assets are 144% of current liabilities. Rate: Current assets are 1.44 times as great as current liabilities. Proportion: The relationship of current assets to current liabilities is 1.44:1.

23. Using the Financial Statements

24. Using the Financial Statements Circuit City reported a net loss of $10.2 million for the year ended Feb. 28, 2007. Using the Income Statement Illustration 2-10 SO 2 Identify and compute ratios for analyzing a company’s profitability.

25. Using the Financial Statements Illustration: Earnings per share (EPS) measures the net income earned on each share of common stock. Profitability Ratio $1,377 (481 - $0 + 485) 2 = $2.85 $1,140 (485 - $0 + 493) 2 = $2.33 Best Buy Illustration 2-11

27. Using the Financial Statements Using the Statement of Stockholders’ Equity SO 3 Explain the relationship between a retained earnings statement and a statement of stockholders’ equity. Most companies use a statement of stockholders’ equity , rather than a retained earnings statement, so that they can report all changes in stockholders’ equity accounts. Illustration 2-12

30. Using the Financial Statements Using a Classified Balance Sheet Illustration 2-13

31. Using the Financial Statements Using a Classified Balance Sheet SO 4 Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. Liquidity —the ability to pay obligations expected to become due within the next year or operating cycle. Illustration 2-14 When working capital is positive, there is greater likelihood that the company will pay its liabilities. Best Buy had working capital in 2007 of $2,780 million.

32. Using the Financial Statements Liquidity ratios measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash. Illustration 2-15 Liquidity Ratio $6,301 = 1.44:1 $9,081 $6,056 = 1.32:1 $7,985 1.68:1 1.75:1 1.21:1 For every dollar of current liabilities, Best Buy has $1.44 of current assets SO 4 Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. NA

34. Using the Financial Statements Using a Classified Balance Sheet SO 4 Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. Solvency —the ability to pay interest as it comes due and to repay the balance of a debt due at its maturity. Solvency ratios measure the ability of the company to survive over a long period of time.

35. Using the Financial Statements Debt to total assets ratio measures the percentage of total financing provided by creditors rather than stockholders. Illustration 2-16 Solvency Ratio $13,570 = 54% $7,369 $11,864 = 56% $6,607 55% 52% 21% The 2007 ratio means that every dollar of assets was financed by 54 cents of debt. SO 4 Identify and compute ratios for analyzing a company’s liquidity and solvency using a balance sheet. NA

39. Using the Financial Statements Using the Statement of Cash Flows SO 5 Use the statement of cash flows to evaluate solvency. Illustration 2-17 Would you feel better about a company’s health if you knew that most of its cash was generated by operating its business rather than by borrowing cash from lenders? ) ) ( (

40. Using the Financial Statements SO 5 Use the statement of cash flows to evaluate solvency. Cash provided by operating activities fails to take into account that a company must invest in new PP&E and must maintain dividends at current levels to satisfy investors. Answers on notes page.

44. Financial Reports Concepts Characteristics of Useful Information SO 7 Discuss financial reporting concepts. Illustration 2-18

46. Financial Reports Concepts Assumptions in Financial Reporting Illustration 2-19 Monetary Unit Time Period Economic Entity Going Concern SO 7 Discuss financial reporting concepts.

47. Financial Reports Concepts Principles in Financial Reporting Illustration 2-20 Cost Full Disclosure SO 7 Discuss financial reporting concepts.

48. Financial Reports Concepts Constraints in Financial Reporting Illustration 2-20 Materiality Conservatism SO 7 Discuss financial reporting concepts.

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