LEARNING GOALS

40

FINANCIAL

STATEMENTS

AND ANALYSIS

CHAPTER

Across the Disciplines WHY THIS CHAPTER MATTERS TO YOU

Accounting:You need to understand the stockholders’ report
and preparation of the four key financial statements; how firms
consolidate international financial statements; and how to cal-
culate and interpret financial ratios for decision making.

Information systems:You need to understand what data are
included in the firm’s financial statements in order to design
systems that will supply such data to those who prepare the
statements and to those in the firm who use the data for ratio
calculations.

Management:You need to understand what parties are inter-
ested in the annual report and why; how the financial state-
ments will be analyzed by those both inside and outside the firm
to assess various aspects of performance; the caution that

should be exercised in using financial ratio analysis; and how

the financial statements affect the value of the firm.

Marketing:You need to understand the effects your decisions

will have on the financial statements, particularly the income

statement and the statement of cash flows, and how analysis of

ratios, especially those involving sales figures, will affect the

firm’s decisions about levels of inventory, credit policies, and

pricing decisions.

Operations:You need to understand how the costs of opera-

tions are reflected in the firm’s financial statements and how

analysis of ratios, particularly those involving assets, cost of

goods sold, or inventory, may affect requests for new equip-

ment or facilities.

Use ratios to analyze a firm’s profitability and its

market value.

Use a summary of financial ratios and the DuPont

system of analysis to perform a complete ratio

analysis.

LG6

Review the contents of the stockholders’ report LG5

and the procedures for consolidating international

financial statements.

Understand who uses financial ratios, and

how.

Use ratios to analyze a firm’s liquidity and

activity.

Discuss the relationship between debt and

financial leverage and the ratios used to analyze

a firm’s debt.

LG4

LG3

LG2

LG1

2