Balance Sheet as per Schedule VI

Indian Companies Act, 1956
Liabilities




Share capital
Reserves and Surplus
Secured Loans
Unsecured Loans
Current Liabilities

Assets



Fixed Assets
Investments
Current assets
Miscellaneous
Expenditure
• P & L a/c (Dr)

Horizontal Analysis
What is horizontal
analysis?

Horizontal Analysis
It’s an analysis of the percentage
increases and decreases of related
items in comparative financial
statements.

Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005

Balance Sheet
Increase (Decrease)
Amount
Percent
$ 17,000
3.2%
(82,500) (46.5%)
(25,500) (5.4%)

$ (91,000) (7.4%)

2006
2005
Assets
Current assets
$ 550,000 $ 533,000
Long-term investments
95,000
177,500
Fixed assets (net)
444,500
470,000
Intangible assets
50,000
50,000
Total assets
$1,139,500 $1,230,500
Liabilities
Current liabilities
$ 210,000 $ 243,000 $ (33,000) (13.6%)
Long-term liabilities
100,000
200,000 (100,000) (50.0%)
Total liabilities
$ 310,000 $ 443,000 $(133,000) (30.0%)
Stockholders’ Equity
Preferred 6% stock, $100 par$ 150,000 $ 150,000

Common stock, $10 par
500,000
500,000

Retained earnings
179,500
137,500
$42,000
30.5%
Total stockholders’ equity $ 829,500 $ 787,500
$42,000
5.3%
Total liab. & SE
$1,139,500 $1230,500 $(91,000) (7.4%)

Lincoln Company
Comparative Balance Sheet
December 31, 2006 and 2005

Increase (Decrease)
2006
2005
Amount
Percent
$ 550,000 $ 533,000 $ 17,000
3.2%
95,000
177,500
(82,500) (46.5%)
444,500 Analysis:
470,000
(25,500) (5.4%)
Horizontal
50,000
50,000

Difference
$1,139,500
$1,230,500$17,000
$ (91,000) (7.4%)

Assets
Current assets
Long-term investments
Fixed assets (net)
Intangible assets
Total assets
=
Liabilities
Base year (2005) $533,000
Current liabilities
$ 210,000 $ 243,000 $ (33,000)
Long-term liabilities
100,000
200,000 (100,000)
Total liabilities
$ 310,000 $ 443,000 $(133,000)
Stockholders’ Equity
Preferred 6% stock, $100 par$ 150,000 $ 150,000

Common stock, $10 par
500,000
500,000

Retained earnings
179,500
137,500
$42,000
Total stockholders’ equity $ 829,500 $ 787,500
$42,000
Total liab. & SE
$1,139,500 $1230,500 $(91,000)

3.2%

(13.6%)
(50.0%)
(30.0%)

30.5%
5.3%
(7.4%)

4%) 2006 2005 Assets Current assets $ 550.000 $ 533.000 30.500) (46.500 Total liabilities $ 310.500 Fixed assets (net) 444.500 Horizontal Analysis: Liabilities Current liabilities $ 210.000) (7.500 $42.000 Intangible assets 50.500 $42.5% Total stockholders’ equity $ 829.4%) .000 $ (33.500 $ 787.139.000 Total assets $1.500 $(91.5%) (25.000 3.500 $1.500 137.Lincoln Company Comparative Balance Sheet December 31.6%) Difference $(82.000 $ 443.230.000) (13.4%) — $ (91.139.3% Total liab.000 (100. $10 par 500.000 $(133.500) (5. & SE $1.000 500.000 — Retained earnings 179.500 $1230.000) (7.2% (82.000 $ 150.000 Long-term investments 95.000 $ 243.0%) = (46.5%) Base year (2005) $177.000 5.000 177.000 200.000) (50.000 50. 2006 and 2005 Increase (Decrease) Amount Percent $ 17.500) Long-term liabilities 100.0%) Stockholders’ Equity Preferred stock. $100 par $ 150.500 470.000 — Common stock.000) (30.

500 assets.0%) Total liabilities $ Difference 310. slideIncrease (Decrease) 2006 2005 Amount Percent and calculate the Assets Current assets percentage $ 550.000 $ (33.500 $ 787.000 $ 443.000 500.5%) Fixed assets (net) 444.4%) .000 $ 17.000 — Retained earnings 179.2% change for fixed Long-term investments 95.500 $(91.000 177.000) (50. go 2006to andthe 2005next Okay.500) (5.000 $ 533.6%) Long-term liabilities 100.3% Total liab.000 ? $(133.000) (30.500 $1.000 — Common stock.4%) Liabilities Horizontal Current liabilities $ 210. 470.000 $ 150.139.000 (25.500 $ (91.000 30.5% Total stockholders’ equity $ 829.139.000 3.000 200.000 — Total assets $1.500 137.500) (46.500 $1230.500 $42.Lincoln Company Comparative Balance Sheet December 31. $100 par$ 150.000 Analysis: $ 243.000) (7.000) (7.500 $42.230.000) (13.500 (82. & SE $1. $10 par 500.4%) Intangible assets 50.0%) = ? Stockholders’ Equity Base year (2005) ? Preferred 6% stock.000 5.000 50.000 (100.

000) (7.000 50.000 30.000 — Common stock.000 $ 243.500) (5.0%) Stockholders’ Equity Preferred 6% stock.500 $(91.4%) Current liabilities $ 210.000 Total assets $1.000) (7.000 $(133.500 470.4%) . $100 par$ 150.5% Total stockholders’ equity $ 829. $10 par 500.500 Liabilities (5.000 $ 443.500 Fixed assets (net) 444.000 5. 2006 and 2005 Increase (Decrease) Amount Percent $ 17.000 Long-term investments 95.500) (46.000 3.000) (30.5%) (25.139.000 Intangible assets 50.500 $42.000 — Retained earnings 179.000 $ 150.000) (50.500 137.3% Total liab. & SE $1.4%) 2006 2005 Assets Current assets $ 550.000 $ (33.4%) — $ (91.0%) Total liabilities $ 310.000 (100.500 $1.Lincoln Company Comparative Balance Sheet December 31.000 500.500 $1230.139.500 $42.000 200.2% (82.6%) Long-term liabilities 100.000 177.230.500 $ 787.000 $ 533.000) (13.

4%) $298.0%) $ 27.500 11.7% 13.000 Sales returns 32.500 24.043.000 Selling expenses $ 191.500 Increase (Decrease) Amount Percent $296.000 27.000 $ 147.000 $ 135.000 820.000 97.000 Income before income tax $ 162.100 Net income $ 91.000) (50.7% $ 44.000 $ 168.500 $ 146.200.500 34.000 Cost of goods sold 1.7% $ 24.600 20.000 19.900 14.600 Other income 8.000 24.8% 223.000 Administrative expenses 104.000 $1.600 Income tax 71.900 20.2% $ 75.400 Total operating expenses $ 295.498.400 23.0% (2.1% $ 14.500 58.530.500 19.234.000 12.8% $ 50.000 $ 244.000 29.500) (4.600 Other expense 6.9% 6.9% (6.000 $ 380.500 $ 134.000 Gross profit $ 455. 2006 and 2005 Income Statement 2006 2005 Sales $1.0% .0% (1.000 Net sales $1.600 6.7%) $ 21.400 Operating income $ 160.500) (22.400 18.000 $ 76.Lincoln Company Comparative Income Statement December 31.500 $1.

900 14.200.0%20.000 29.000) (50.000 $ 76.7%) $ 168.400 $ 50.9% Other expense 6.500 $ 134.000 $298.500 $ 14.7% Income tax 71.600 $ 24.100 13.2% Gross profit $ 455.234.000 (2.000 $ 44.0% Other income 8.000 223.0% Sales returns 32.000 Operating income $ 160.7% Horizontal Analysis: Selling expenses $ 191.500 58.000 24.600 = 24.000 $ 244.600 Total operating expenses $ 295.000 (6.500 11.400 23.000 $ 75.500 19.000 19.600 $ 27.530.8% Increase amount97. 2006 and 2005 Increase (Decrease) 2006 2005 Amount Percent Sales $1.9% Administrative expenses 104.000 $ 380.000 6.000 $1.043.498.234.000 12.0%) Income before income tax $ 162.4%) Net sales $1.000 27.900 20.400 $296.500 34.000 $ 135.500) (4.500 24.1% Net income $ 91.000 820.500) (22.7% Base year (2005) $1.000 $ 147.500 $1.8% Cost of goods sold 1.000 $296.600 $ 21.400 18.500 $ 146.500 6.0% .Lincoln Company Comparative Income Statement December 31.000 (1.

600 6.400 18.500 $1.7% Income tax 71.000) (50.500) (22.000 97.4%) 24.000(6. 2006 and 2005 Increase (Decrease) 2006 2005 Amount Percent Sales $1.000 $298.500 24.530.400 6.9% $ 168.0% Other income 8.000 223.500 $ 146.234.000 $ 76.900 Base year (2005)12.0%) Other expense 6.000 $ 44.000 29.7%) = 24.000 27.000 $ 75.0% Sales returns 32.7% Analysis: Operating income $ 160.200.900 20.043.8% Total operating expensesHorizontal $ 295.000 19.9% Administrative expenses 104.400 23.8% Net sales $1.000 Income before income tax $ 162.500 $ 134.600 $ 21.500 $ 14.000 820.000 $ 244.100 13.600 $ 24.000 $298.500 Increase amount11.500 58.400 $ 50.500 19.000 $ 135.000 $ 147.7% Selling expenses $ 191.200.8%14.000 (2.000 $1.600 20.000 $ 380.1% Net income $ 91.500 34.2% Gross profit $ 455.8% Cost of goods sold 1.000 24.000 $296.000 $1.Lincoln Company Comparative Income Statement December 31.500) (4.600 $ 27.498.000 (1.0% .

.Vertical Analysis A percentage analysis can be used to show the relationship of each component to a total within a single statement.

Vertical Analysis The total. or 100% item.” . on the balance sheet is “total assets.

000 200.500 Total stockholders’ equity $ 829.8% 100.000 Long-term investments 95.139. assets Common $10 par $1.500 Liabilities Current liabilities $ 210.0% 43.500 Intangible assets 50.230.Lincoln Company Comparative Balance Sheet December 31. 2006 Amount Percent Assets Current assets $ 550.0 4.139. (net) 444.0% 18.4% 8.000 Property.500 Balance Sheet December 31.9 15.3 36.000 Retained earnings 179.000 500.500 500.6 11. $100 par $ 150.7% 16.0% .0% 100.000 177. & SE $1.000 50.3 39.2 64.000 137.000 = Totalstock.1 100.500 43.0% 13.0% $ 533.139.4 100.000 Preferred stock.000 Long-term liabilities 100.7 72.8 27.000 19. 6%.3% 14.500 470.2% $ 243. 2005 Amount Percent 48.000 $ 443. & equip.3% $ 150.000 Total assets $1.2% 40.500 $1.500 Total liab.000 Stockholders’ Equity Current assets $550.2% 48.230.500 12.500 $ 787.3% 8.4 38. plant.2 4.000 $1.000 Vertical Analysis: Total liabilities $ 310.

000 Common stock.000 36.500 100.000 13.000 8.230.8% $ 787. plant.000 16.000 12.8 200.Lincoln Company Comparative Balance Sheet December 31.500 11.4 Property.0% Total liab.6 Retained earnings 179.500 64.2% Total liabilities $ 310.500 100.0% Stockholders’ Equity Current assets $533.139.9 40.000 4.000 4.7% Long-term liabilities 100.3% $ 533.2% $ 150.0 470.000 43.3 177. (net) 444.000 19.500500.000 18.0% $1.500 100. $10 par Total assets 500.1 Total assets $1.4% $ 243.500 100.500 14.000 43.0% $1.000 $ 443.139.4 50.500 15. 2005 Amount Percent Assets Current assets $ 550.230.2 Intangible assets 50.2 Total stockholders’ equity $ 829.2% = 43.000 8. $100 par $ 150.3% $1.7 137.0% Liabilities Current liabilities $ 210.500 39. 2006 Amount Percent December 31. & SE $1.3% 43. & equip.000 38.0% .3% Long-term investments 95.000 48.3 Vertical Analysis:27.500 72.000 Preferred 6% stock.230.

0% 100. 2006 Amount Percent Assets Current assets Long-term investments Property.2% 40.000 444.000 50.000 179.2 64.0% $ 210.000 $ 310.2 4.7% 16.4 38.2% 43.000 100.Lincoln Company Comparative Balance Sheet December 31.3% 8.139.8% 100.4 100.000 137.4% 8.000 19.230.9 15.139. $100 par Common stock. $10 par Retained earnings Total stockholders’ equity Total liab. & SE December 31.000 200.500 $1.8 27.3 36.000 $1.500 12.000 500.000 95. (net) Intangible assets Total assets Liabilities Current liabilities Long-term liabilities Total liabilities Stockholders’ Equity Preferred 6% stock.000 177.000 500.7 72.0 4. plant.500 $ 829.0% $ 533.2% $ 243.0% $ 150.500 13.500 50. 2005 Amount Percent $ 550.500 43.500 $ 787.1 100.500 $1. & equip.0% .230.3 39.500 48.3% 14.000 18.000 $ 443.500 470.0% $ 150.000 $1.6 11.

000 12.7% Selling expenses $ 191.9 97.000 100.200.000 69.3% $ 146.000 6.8 Net sales $1.500 10.000 102.500 6.Lincoln Company Income Comparative Income Statement Statement For the Years Ended December 31.3 Gross profit $ 455.4% .0 Income before income tax $ 162.234.0% 19.8% sales $ 147.8 58.8% Sales returns 32.0% $1.4% Income from operations $ 160.1 Total operating expenses $ 295.500 4.400 20.0% Cost of goods sold 1.3% Administrative expenses 104.500 102.000 2.000 0.9% $ 134.500 0.7% $ 244.1% $ 76.000 31.000 100.3% Other income 8.043.600 11.530.2% Income tax expense 71.000 30.4% $ 380. 2006 and 2005 2006 2005 Amount Percent Amount Percent Sales $1.000 0.000 6.600 12.500 11.000 Net12.498.8 Net income $ 91.000 10.600 11.400 8.000 68.000 1.7 $ 135.9 $ 168.2% $1.6 820.500 2.000 is 100.2 34.4 12.100 4.6 11.2% Other expense 6.

000 6.1% $ 76.500 11.000 2.3% $ 146.400 8.000 30.600 11.7% $ 244.2% Other expense 0.600 12.500 6.500 102.043.4% $ 380.000 31.000 69.500 4.4% .8 Net income $ 91.498.9% $ 134.100 4.000 6.7 $ 135. 2006 and 2005 2006 2005 Amount Percent Amount Percent Sales $1.9 97.0% $1.000 12.400 20.8 58.3% Administrative expenses 104.8% 10.500 2.2% $1.530.000 Income before income tax $ 162.2 34.000 100.8% Sales returns 32.0% Cost of goods sold 1.6 820.600 11.8 Net sales $1.500= 12.1 Total operating expenses $ 295.200.000 102.000 19.2% Nettax sales $1.000 0.9 Vertical Analysis: $ 168.000 100.000 68.0006.500 0.3% Other income 8.000 10.4% Income from operations $ 160.6 11.7% Selling expenses $ 191.0 Selling expenses $191.000 1.3 Gross profit $ 455.234.000 Income expense 71.Lincoln Company Comparative Income Statement For the Years Ended December 31.498.000 12.8% $ 147.4 12.

000 12.000 69.4% .500 11.100 4.000 31.8 Net income $ 91.3% $ 146.3% Administrative expenses 104.000 30.498.9 97.2% Income tax expense 71.500 4.400 20.3% Other income 8.8% Sales returns 32.1% $ 76.7 $ 135.2 34.Lincoln Company Comparative Income Statement For the Years Ended December 31.9 $ 168.000 0.4% Income from operations $ 160.0% $1.000 10. 2006 and 2005 2006 2005 Amount Percent Amount Percent Sales $1.4% $ 380.043.530.500 6.000 12.8 58.000 68.000 100.000 6.600 11.000 2.000 1.200.6 820.500 10.6 11.9% $ 134.8 Net sales $1.000 0.2% $1.500 0.8% $ 147.3 Gross profit $ 455.000 100.0% Cost of goods sold 1.000 6.2% Other expense 6.0 Income before income tax $ 162.7% Selling expenses $ 191.000 102.7% $ 244.000 19.600 11.400 8.234.500 2.4 12.600 12.1 Total operating expenses $ 295.500 102.

043.3% Administrative expenses 104.000 0.200.000 19.000 6.0 Income before income tax $ 162.3 Gross profit $ 455.7% $ 244.4% Income from operations $ 160.Lincoln Company Comparative Income Statement For the Years Ended December 31.000 68.8 58.498.500 10.000 2.000 100.000 6.9 $ 168.000 100.2% Other expense 6.8% $ 147.000 12.000 69.0% $1.4% $ 380.8% Sales returns 32.500 11.2% $1.2 34.7% Selling expenses $ 191.8 Net income $ 91.000 102.500 2.500 6.8 Net sales $1.0% Cost of goods sold 1.6 11.500 102.7 $ 135.3% Other income 8.000 31.6 820.9% $ 134.4% . 2006 and 2005 2006 2005 Amount Percent Amount Percent Sales $1.2% Income tax expense 71.000 1.4 12.234.400 8.530.1 Total operating expenses $ 295.600 12.500 0.100 4.000 0.000 30.600 11.400 20.3% $ 146.500 4.000 10.9 97.600 11.1% $ 76.000 12.

Common Size Statements Vertical analysis with both dollar and percentage amounts is also useful in comparing one company with another or with industry averages. . Such comparisons are easier to make with the use of common-size statements in which all items are expressed in percentages.

Common-Size Income Statement .

RATIO ANALYSIS .

Solvency Analysis  Solvency is the ability of a business to meet its financial obligations (debts) as they are due.  This ability is normally assessed by examining balance sheet relationships. .  Solvency analysis focuses on the ability of a business to pay or otherwise satisfy its current and noncurrent liabilities.

6 2005 $533. current assets by current liabilities .000 2.Current Position Analysis Working Capital and Current Ratio Current assets Current liabilities Working capital Current ratio 2006 $550.000 243.000 $340.000 $290.000 2.2 Use: To indicate the abilityDivide to meet currently maturing obligations.000 210.

3 $ 64.000 115.0 Use: To indicate instant debt-paying ability.000 $280. .500 $210.000 $244.700 60.500 75.000 120.000 1.000 1.700 $243.Current Position Analysis Quick Ratio Quick assets: Cash Marketable securities Accounts receivable (net) Total Current liabilities Quick ratio 2006 2005 $ 90.

200.500 $ 235.000 $ 130.000 2005 $1.000 Net sales on account Average accounts receivable .000 115.000 $ 260.498.000 $ 120.500 $ 140.000 $ 117.000 120.Accounts Receivable Analysis Accounts Receivable Turnover Net sales on account Accounts receivable (net): Beginning of year End of year Total Average (Total ÷ 2) 2006 $1.

000 $ 130.000 115.500 $ 235.000 $ 117.000 $ 120.000 2005 $1. .Accounts Receivable Analysis Accounts Receivable Turnover Net sales on account Accounts receivable (net): Beginning of year End of year Total Average Accounts receivable turnover 2006 $1.500 12.2 Use: To assess the efficiency in collecting receivables and in the management of credit.200.000 $ 260.000 120.7 $ 140.000 9.498.

104 Accounts receivable.000 $1. end of year Average daily sales on account 3.000 $1.Accounts Receivable Analysis Number of Days’ Sales in Receivables 2006 Accounts receivable (net).000 $ $ 4. end of year Net sales on account Average daily sales on account (sales ÷ 365) 2005 $ 115.498.288 .000 $ 120.200.

498.000 $ $ 4.000 $ 120.000 $1.0 3. end of year Net sales on account Average daily sales on account (sales ÷ 365) Number of days’ sales in receivables 2005 $ 115.200.Accounts Receivable Analysis Number of Days’ Sales in Receivables 2006 Accounts receivable (net).000 $1.104 28.5 Use: To assess the efficiency in collecting receivables and in the management of credit.288 36. .

000 $ 273.000 $ 283.500 $ 311.000 $ 297.000 283.000 Cost of goods sold Average inventory .Inventory Analysis Inventory Turnover Cost of goods sold Inventories: Beginning of year End of year Total Average (Total ÷ 2) Inventory turnover = 2006 $1.000 $ 547.000 264.000 2005 $ 820.043.000 $ 594.

Inventory Analysis Inventory Turnover Cost of goods sold Inventories: Beginning of year End of year Total Average (Total ÷ 2) Inventory turnover 2006 $1.000 $ 547.000 283.000 $ 283.000 $ 273.500 3.000 264.8 $ 311. .8 Use: To assess the efficiency in the management of inventory.000 2005 $ 820.000 $ 297.000 $ 594.000 2.043.

end of year Cost of goods sold Average daily cost of goods sold (COGS ÷ 365) Number of Days’ Sales = in Inventory 2006 $ 264.000 $1.000 2005 $283.Inventory Analysis Number of Days’ Sales in Inventory Inventories.000 $820.043. end of year Average daily cost of goods sold .858 2.247 Inventories.000 $ $ 2.

247 125.Inventory Analysis Number of Days’ Sales in Inventory Inventories.000 2005 $283.000 $ $ 2.858 92. end of year Cost of goods sold Average daily cost of goods sold (COGS ÷ 365) Number of days’ sales in inventory 2006 $ 264.000 $1.000 $820.043.9 . 2.4 Use: To assess the efficiency in the management of inventory.

500 $100.4 2.000 $200. .4 Use: To indicate the margin of safety to long-term creditors.000 4.000 2005 $470.Long-Term Creditors Ratio of Fixed Assets to Long-Term Liabilities Fixed assets (net) Long-term liabilities Ratio of fixed assets to long-term liabilities 2006 $444.

56 Use: To indicate the margin of safety to creditors.500 0. .000 $787.000 $829.37 0.Long-Term Creditors Ratio of Liabilities to Stockholders’ Equity Total liabilities Total stockholders’ equity Ratio of liabilities to stockholders’ equity 2006 $310.500 2005 $443.

000 $1.000 $ 800.000 $1.000 Income before income tax + interest expense Interest expense .200.Long-Term Creditors Number of Times Interest Charges Earned Income before income tax Add interest expense Amount available for interest Number of Times Interest = Charges Earned 2006 2005 $ 900.000 300.000 250.050.

000 250.Long-Term Creditors Number of Times Interest Charges Earned Income before income tax Add interest expense Amount available for interest Number of times earned 2006 2005 $ 900.000 $ 800.0 Use: To assess the risk to debtholders in terms of number of times interest charges were earned.000 $1.000 4.050.2 .200.000 300.000 $1. 4.

Profitability Analysis  Profitability is the ability of an entity to earn profits.  This ability to earn profits depends on the effectiveness and efficiency of operations as well as resources available. .  Profitability analysis focuses primarily on the relationship between operating results reported in the income statement and resources reported in the balance sheet.

750 $1.048.000 $2.044.500 $1.200.000 2005 $1.063.000 $1.498.053.000 1.010.000 1.097.500 $2.053.000 $1.500 Excludes long-term investments .The Common Stockholder Ratio of Net Sales to Assets Net sales Total assets: Beginning of year End of year Total Average (Total ÷ 2) 2006 $1.031.

000 1.000 $1.498.200.500 1.The Common Stockholder Ratio of Net Sales to Assets Net sales Total assets: Beginning of year End of year Total Average (Total ÷ 2) Ratio of net sales to assets 2006 $1.000 $1.031.000 2005 $1.500 $2.097.063.048.000 1.044. 1.053.2 .750 $1.010.4 Use: To assess the effectiveness of the use of assets.500 $1.000 $2.053.

185.000 $ 97.000 6.000 $1.500 $2.230.000 8. .000 2005 $ 76.370.500 $1.500 12.500 $2.500 1.230.500 1.187.209.000 7.3% Use: To assess the profitability of the assets.2% $1.418.The Common Stockholder Rate Earned on Total Assets Net income Plus interest expense Total Total assets: Beginning of year End of year Total Average (Total ÷ 2) Rate earned on total assets 2006 $ 91.000 $ 88.000 $1.139.

000 2005 $ 76.500 $1.000 787.000 $ 808.617. .500 $ 750.3% 10.0% Use: To assess the profitability of the investment by stockholders.500 $ 787.500 $ 768.The Common Stockholder Rate Earned on Stockholders’ Equity Net income Stockholders’ equity: Beginning of year End of year Total Average (Total ÷ 2) Rate earned on stockholders’ equity 2006 $ 91.500 $1.500 829.750 11.537.

500 $1.000 $ 637.500 $ 618.500 $ $ 2005 76.500 $1.000 67.000 637.500 9.317.000 $ 658.000 9.750 .237.500 679.000 82.500 $ 600.The Common Stockholder Rate Earned on Common Stockholders’ Equity Net income Less preferred dividends Remainder—common stock Common stockholders’ equity: Beginning of year End of year Total Average (Total ÷ 2) $ $ 2006 91.

500 $1.000 9.500 $ 637.750 12.000 82.The Common Stockholder Rate Earned on Common Stockholders’ Equity Net income Less preferred dividends Remainder—common stock Common stockholders’ equity: Beginning of year End of year Total Average (Total ÷ 2) Rate earned on common stockholders’ equity $ $ 2006 91.500 9.500 $ 600.5% 10.237.000 $ $ 2005 76.317.000 $ 658.500 679.000 67.500 $ 618.500 $1. .000 637.9% Use: To assess the profitability of the investment by common stockholders.

000 $ 82.64 2005 $ 76.500 9.000 50.000 $ 67.The Common Stockholder Earnings Per Share on Common Stock Net income Less preferred dividends Remainder—common stock Shares of common stock Earnings per share on common stock 2006 $ 91.500 50.000 9.35 Use: To assess the profitability of the investment by common stockholders. .000 $1.000 $1.

64 Price-earnings ratio on common stock 25 2005 $27.00 ÷ 1.The Common Stockholder Price-Earnings Ratio 2006 Market price per share of common $41.00 Earnings per share on common ÷ 1.35 20 Use: To indicate future earnings prospects. based on the relationship between market value of common stock and earnings. .

00 1.80 ÷ 41.22% Use: To indicate the rate of return to common stockholders in terms of dividends. .00 2.The Common Stockholder Dividend Yield on Common Stock Dividends per share of common Market price per share of common Dividend yield on common stock 2006 $ 0.60 ÷ 27.95% 2005 $ 0.

It compares the prior year’s income statement with the current year’s.Corporate Annual Reports In addition to financial statements. The MDA includes an analysis of the results of operations and discusses management’s opinion about future performance. . It also contains an analysis of the firm’s financial condition. the annual report includes a management discussion analysis (MDA) and an independent auditors’ report.

Before issuing annual statements. the annual report includes a management discussion analysis (MDA) and an independent auditors’ report. The CPAs who conduct the audit render an opinion as to the fairness of the statements. . all publicly held corporations are required to have an independent audit of their financial statements.Corporate Annual Reports In addition to financial statements.