How Financial Assets Can Be Evaluated
Evaluating Financial Performance
Finance
Financial Performance
• One of the most fundamental facts about businesses is that the operating performance of the firm shapes its financial structure. • It is also true that the financial situation of the firm can also determine its operating performance. • The financial statements are therefore important diagnostic tools for the informed manager.
– To keep the discussion grounded, we will use the 1997-98 financial statement for the Timberland Company as illustrations.
The Timberland Company, Balance Sheets ($ millions) 12/31/1997 Assets Cash and marketable securities 98.8 Accounts receivable 75.8 Inventories 142.6 Prepaid expenses and other current assets 24.9 Total current assets 342.1 Property, plant, and equipment 116.5 Less accumulated depreciation and amortization (63.6) Net property, plant, and equipment 52.9 Intangible assets 20.9 Other assets 4.2 Total assets $420.1 Liabilities and Shareholders' Equity Accounts Payable Wages payable Income taxes payable Other accrued expenses Total current liabilities Long-term debt Deferred income taxes Total liabilities Common stock Additional paid-in capital Retained earnings Less treasury stock Total shareholders' equity Total liabilities and shareholders' equity
12/31/1998 151.9 79.0 131.2 25.4 387.5 131.2 (74.3) 56.9 19.2 5.8 $469.4
Change 53.1 3.2 (11.4) 0.5 14.7 (10.7) 4.0 (1.7) 1.6
20.4 28.2 17.7 32.8 99.1 100.0 6.0 205.1 0.1 68.6 146.3 (0.1) 214.9 $420.1
25.9 22.1 18.2 29.5 95.7 100.0 7.5 203.2 0.1 74.7 207.7 (16.3) 266.2 469.4
5.5 (6.1) 0.5 (3.3) -1.5
51.3
The Timberland Company, Income Statements ($ millions) 12/31/1997 12/31/1998 Net sales Cost of sales Gross profit Selling expenses General and administrative expenses Depreciation and amortization Amortization of goodwill Total operating expenses Operating income Interest expense Other expense (income) Total nonoperating expenses Income before income taxes Provision for income taxes
Finance
Financial Performance
• One of the most fundamental facts about businesses is that the operating performance of the firm shapes its financial structure. • It is also true that the financial situation of the firm can also determine its operating performance. • The financial statements are therefore important diagnostic tools for the informed manager.
– To keep the discussion grounded, we will use the 1997-98 financial statement for the Timberland Company as illustrations.
The Timberland Company, Balance Sheets ($ millions) 12/31/1997 Assets Cash and marketable securities 98.8 Accounts receivable 75.8 Inventories 142.6 Prepaid expenses and other current assets 24.9 Total current assets 342.1 Property, plant, and equipment 116.5 Less accumulated depreciation and amortization (63.6) Net property, plant, and equipment 52.9 Intangible assets 20.9 Other assets 4.2 Total assets $420.1 Liabilities and Shareholders' Equity Accounts Payable Wages payable Income taxes payable Other accrued expenses Total current liabilities Long-term debt Deferred income taxes Total liabilities Common stock Additional paid-in capital Retained earnings Less treasury stock Total shareholders' equity Total liabilities and shareholders' equity
12/31/1998 151.9 79.0 131.2 25.4 387.5 131.2 (74.3) 56.9 19.2 5.8 $469.4
Change 53.1 3.2 (11.4) 0.5 14.7 (10.7) 4.0 (1.7) 1.6
20.4 28.2 17.7 32.8 99.1 100.0 6.0 205.1 0.1 68.6 146.3 (0.1) 214.9 $420.1
25.9 22.1 18.2 29.5 95.7 100.0 7.5 203.2 0.1 74.7 207.7 (16.3) 266.2 469.4
5.5 (6.1) 0.5 (3.3) -1.5
51.3
The Timberland Company, Income Statements ($ millions) 12/31/1997 12/31/1998 Net sales Cost of sales Gross profit Selling expenses General and administrative expenses Depreciation and amortization Amortization of goodwill Total operating expenses Operating income Interest expense Other expense (income) Total nonoperating expenses Income before income taxes Provision for income taxes