Concord Company manufactures backpacks. During 2017, Concord issued bonds at 12% interest and used the cash proceeds to purchase treasury stock. The following financial information is available for Concord Company for the years 2017 and 2016. 2017 2016 Sales revenue $17,100,000 $17,100,000 Net income 4,256,000 4,750,000 Interest expense 1,400,000 392,000 Tax expense 1,273,000 1,425,000 Dividends paid on common stock 2,492,000 2,872,800 Dividends paid on preferred stock 840,000 840,000 Total assets (year-end) 27,550,000 32,062,500 Average total assets 43,925,000 49,736,400 Total liabilities (year-end) 16,800,000 8,400,000 Avg. total common stockholders' equity 26,320,000 39,480,000 (a) Use the information above to calculate the following ratios for both years: (Round answers to 1 decimal place, e.g. 12.5%.) 2017 2016 (1) Return on assets % % (2) Return on common stockholders' equity % % (3) Payout ratio % % (4) Debt to assets ratio % %
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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