Financial Statement FrameworkFinancial Performance &Financial StatementsProfessor Doug CerfDonald Bren Graduate School of Environmental Science and ManagementCorporate Environmental Management (ESM 281)Spring 2010

Financial Statement Framework is a primary channel for communicating information about the economics of a business

ObjectivesGoal: Obtain the tools to evaluate the financial performance of a business, project or divisionUse financial statements to understand financial performance.the main point is the ability to understand how to evaluate and communicate financial performance.It is not the preparation of the statementsapplies to a continuum of entitiesdivision of a companystart up company partnershipcorporation

Lecture on the financial statement frameworkEvaluate Wal-Mart. (WMT) financial performance on Google FinanceFinancial Statement Framework (the big picture)Statement of Financial Position (Balance Sheet)Company assets and claims to those assetsAt a point in timeStatement of Operations (Income Statement)Revenue less expenses (costs necessary to generate revenue)For a period of timeStatement of Cash FlowsInflows and outflows of cash related to the operating, financing and investing activities of the entityFor a period of time

Maria Hernandez Case Understand the financial condition of a start-up enterprise.Has Maria made a profit? Does it matter?Why has the cash level declined significantly?Should Maria be worried?What are the risks?

Analyze financial conditionTwo phasesPhase #1 Prior to beginning of operationsPrior to July 1, 2004Go through the transactions prior to July1 to prove balance sheet shown on page 1 of case.Prepare a Statement of Cash FlowsPhase #2 First two months of operationJuly 1, 2004 through August 31, 2004Prepare all three statements

Prior to start of operationsAs a class prove balance sheetprepare statement of cash flowsShe raised $50,000 and has $12,000 left and she has not started her businessWhat does she have to show for it?Can you see the distribution of her assets and who has claim to them?

Financial condition at the end of two months of operationsPrepare the financial condition for the first two months of operations 7/1/04 8/31/04Transaction by transactionStudents work on this in groups for 15 minutes if necessaryEntire class prepare statements on the board

How is Maria doing?Maria had services rendered of $47,000Maria received a salary Interpretation of profit is different if owners do not receive a salary.From operation of the business:Assets have increased by about 10,300.Liabilities have increased by 5,700.Profit $4,600Why has the cash level declined significantly?Started at $50,000 and now is $6,600 2+ months laterShould Maria be worried?What are the risks?Solvency-Can she pay salaries next month?Can she borrow money?Collection risk (from customers)