Post on 11-Jan-2016
Foundations of Business
Introduction to Financial Reporting
The Balance Sheet
Financial Application Assignment
Basic Elements of Financial Statements
Assets =
Liabilities =
Equity =
What a business owns
What a business owes
Owners’ economic position in the business
Balance Sheet Equation
Assets = (What a
company owns)
A =
Liabilities
+ Stockholders’ Equity
L + OE
(Funds to purchase what a company owns)
Balance Sheet
What a Company = owns
A =
Funds to purchase what a company owns
L + OE
Champ Creemee CompanyBalance Sheet (as of 12/31/10)
Cash $8,690
Accounts Receivable 3,000
Inventory 3,500
Current AssetsCurrent Assets 15,190
Equipment 3,000
Total AssetsTotal Assets $18,190$18,190
Accounts Payable $2,000
Wages Payable 500
Current Liabilities 2,500 Notes Payable (L.T.) 5,000
Total Liabilities Total Liabilities 7,5007,500
Common Stock 10,000 Retained Earnings 690
Total Shareholders’ Equity 10,690
Total Liab. & SH EquityTotal Liab. & SH Equity $18,190
Shows the company’s position on a fixed date; “snapshot” in time
How Transactions Impact How Transactions Impact Financial StatementsFinancial Statements
Increase in something owned
Increase in something owed
Sale of Common stock
Increase in Sales
Increased Expenses associated with sales
Increase in Net Income
Pay dividend
+ Asset
+ Liability
+ Common Stock
+ Sales + Net Income
+ Expenses - Net Income
+ Retained Earnings
- Retained Earnings
Owners’ EquityOwners’ Equity
Example: Owning a house with a mortgage
Value of the house (= asset): $300,000- Mortgage (= liability): $200,000Owners’ Equity: $100,000
Assets - Liabilities = Equity(House) - (Mortgage) = Equity$300,000 - $200,000= $100,000
The 30 Companies in the Dow Jones Industrial Average (DJIA)3M Company
(MMM)Alcoa Inc. (AA) Amer. Express
(AXP)AT&T (T) Bank of
America (BAC)
Boeing (BA) Caterpillar Inc. (CAT)
ChevronCorporation
(CVX)
Cisco Systems (CSCO)
Coca-Cola (KO)
DuPont (DD) Exxon Mobil Corp. (XOM)
Gen'l Electric (GE)
Hewlett- Packard
(HPQ)
Home Depot (HD)
Intel (INTC) Int'l Business Mach. (IBM)
Johnson & Johnson (JNJ)
JPMorgan Chase (JPM)
Kraft Foods (KFT)
McDonald's Corp.
(MCD)
Merck & Co. (MRK)
Microsoft Corp. (MSFT)
Pfizer, Inc. (PFE)
Procter & Gamble (PG)
Travelers (TRV)
United Technologies
(UTX)
Verizon Communic.
(VZ)
Wal-Mart Stores
(WMT)
Walt Disney (DIS)
Spring 2011
The Dow Jones Industrial Average
(The DJIA or the “Dow”)
Source: Google Finance
= Dow Jones
The Dow vs. the S&P 500 (Standard & Poor’s 500)
= S&P 500= Dow Jones
Source: Google Finance
3 major market indexesthe DJIA, S&P 500, NASDAQ
Source: Google Finance
=NASDAQ
BP vs. Exxon Mobil vs. the S&P 500
Link to Financial Application Assignment
Source: Google Finance
A major company event—Jan. 13, 2011
Effect on company stock price?
Merck clot drug seen unfit for strokeTop experimental drug found unfit for stroke patients* Vorapaxar acquired in Merck's buy of Schering-Plough* Dashed drug hopes pose challenge to new CEO* Merck shares drop 6.6 pct (Adds Merck drag on Dow, drug sales potential,
stroke statistics)By Ransdell PiersonNEW YORK, Jan 13 (Reuters) - One of Merck & Co's (MRK) most important
experimental drugs, blood clot preventer Vorapaxar, has been deemed inappropriate for patients who have suffered a stroke, dashing investor hopes and erasing nearly $8 billion from its market value.
Vorapaxar, meant to prevent heart attacks and strokes or their recurrence, was considered a crown jewel in Merck's $41 billion acquisition in late 2009 of Schering-Plough Corp and deemed capable of generating annual sales of more than $3 billion.
Jan. 13, 2011
Date, source
headline
Company announcement
Comparison chart: The impact of a company event on the
company’s stock price
Event: Announcement by Merck of Vorapaxar’s ineffectiveness
Effect of a company announcement on the company’s stock price
Date of Announcement
MRK’s stock price underperforms the S&P500 slightly before the event but then experiences a sharp decline on the day of the event and continues to
underperform the S&P 500 for the next 5 days.
Creating an Index
DATE S&P 500 ACTUAL VALUE(Close)
S& P 500 INDEX VALUE(calculated)
MERCK ACTUAL STOCK
PRICE (Close)
MERCK INDEX VALUE
(calculated)
1/10/11 1269.75 100 $37.20 100
1/11/11 1274.48 1274.48 / 1269.75 x 100 = 100.37
$36.95 36.95 / 37.20 x 100 = 99.33
1/12/11 1285.96 1285.96 / 1269.75 x 100 = 101.28
$37.15 37.15 / 37.20 x 100 = 99.87
1/13/11 1283.76 1283.76 / 1269.75 x 100 = 101.10
$34.69 34.69 / 37.20 x 100 = 93.25
1/14/11 1293.24 1293.24 / 1269.75 x 100 = 101.85
$34.23 34.23 / 37.20 x 100 = 92.02
1/18/11 1295.02 1295.02 / 1269.75 x 100 =101.99
$33.87 33.87 / 37.20 x 100 = 91.05
1/19/11 1281.92 1281.92 / 1269.75 x 100 =100.96
$33.91 33.91 / 37.20 x 100 = 91.16
1/20/11 1280.26 1280.26 / 1269.75 x 100 =100.83
$34.05 34.05 / 37.20 x 100 = 91.53
1/21/11 1283.35 1283.35 / 1269.75 x 100 = 101.07
$33.90 33.90 / 37.20 x 100 = 91.13
Index = new value / base value * 100
Base value 1
Base value 2
Champ Creemee CompanyInventory
2 gallons of ice cream
cones napkins