{"id":123,"date":"2018-04-16T20:24:21","date_gmt":"2018-04-16T20:24:21","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/?post_type=chapter&#038;p=123"},"modified":"2024-04-26T22:18:05","modified_gmt":"2024-04-26T22:18:05","slug":"key-information-in-financial-statements","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/chapter\/key-information-in-financial-statements\/","title":{"raw":"Key Information in Financial Statements","rendered":"Key Information in Financial Statements"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Identify important information found on key financial statements<\/li>\r\n<\/ul>\r\n<\/div>\r\nAs you have seen, the financial statements summarize a massive amount of raw data, turning it into information that is presented in a specific format.\r\n<h2>The Income Statement, Revisited<\/h2>\r\nA multiple-step income statement begins with Net Sales, which is Gross Sales less Returns and Allowances and net of Sales Discounts.\r\n\r\nCost of Goods Sold directly matches the cost of products sold against Net Sales. Often, a company then reports Gross Profit, which is Net Sales less Cost of Goods Sold. For instance, looking at The Home Depot, Inc. annual report (http:\/\/www.homedepotar.com\/financial-highlights.html) for the fiscal year 2017, Net Sales were $100.9 billion (rounded to the nearest billion) and Cost of Sales (aka Cost of Goods Sold) was $66.5 billion, giving a gross profit of $34.4 billion. That remaining amount of $34.4 billion goes to pay operating expenses, income taxes, and other costs of doing business.\r\n\r\nFor The Home Depot, Inc., for the 2017 fiscal year, Selling, General, and Administrative expenses totaled $19.7 billion, leaving an operating income of $14.7 billion. Lowe\u2019s, Inc. shows an operating income of $6.6 billion.\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Typical Statement of Earnings<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">(Income Statement)<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Comparison of Home Depot to Lowe's<\/td>\r\n<\/tr>\r\n<tr style=\"height: 30px;\">\r\n<td style=\"text-align: center; width: 116.667%; height: 30px;\" colspan=\"3\">For the 2017 fiscal year (all monetary amounts in billions)<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px;\"><\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">Home Depot<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">Lowe's<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px;\">Net Sales<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">$100.9<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">$68.6<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Cost of sales<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">66.51<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">45.2<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Gross profit<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">34.4<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">23.4<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Selling, general, and admin<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">19.7<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">16.8<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Operating income<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">14.7<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">6.6<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Other income and expenses<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">1.0<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">1.1<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 50.6224%; text-align: left;\">Net income before taxes<\/td>\r\n<td style=\"width: 29.9447%; text-align: right;\">13.7<\/td>\r\n<td style=\"width: 36.0995%; text-align: right;\">5.5<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 50.6224%; text-align: left;\">Provision for income taxes<\/td>\r\n<td style=\"width: 29.9447%; text-align: right;\"><span style=\"text-decoration: underline;\">5.1<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right;\"><span style=\"text-decoration: underline;\">2.0<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 50.6224%; text-align: left;\">Net income<\/td>\r\n<td style=\"width: 29.9447%; text-align: right;\"><span style=\"text-decoration: underline;\">$8.6<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right;\"><span style=\"text-decoration: underline;\">$3.5<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nOther income and expenses include interest expense and non-operating expenses. By separating out these non-operational amounts, operating income is more comparable across different companies. For instance, if Lowe\u2019s borrowed very little money and was mostly funded by owner contributions, and if Home Depot borrowed heavily, operating income would not be affected, even though other income and expenses would be quite different, affecting the bottom line significantly.\r\n<h2>The Statement of Owners\u2019 Equity, Revisited<\/h2>\r\nAs discussed earlier, net income flows from the bottom line of the income statement to the statement of owners\u2019 equity. For publicly traded companies like Home Depot and Lowe\u2019s, the statement of owners\u2019 equity can be called the Statement of Shareholders\u2019 Equity or something similar. In any case, it shows changes in owners\u2019 equity, as follows:\r\n<table style=\"border-collapse: collapse; width: 100%;\" border=\"1\">\r\n<tbody>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Typical Statement of Owner's Equity<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Comparison of Home Depot to Lowe's<\/td>\r\n<\/tr>\r\n<tr style=\"height: 30px;\">\r\n<td style=\"text-align: center; width: 116.667%; height: 30px;\" colspan=\"3\">For the 2017 fiscal year (all monetary amounts in billions)<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px;\"><\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">Home Depot<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">Lowe's<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px;\">Beginning equity<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">$4.3<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">$6.4<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Net income<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">8.6<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">3.5<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 50.6224%; text-align: left;\"><\/td>\r\n<td style=\"width: 29.9447%; text-align: right;\">12.9<\/td>\r\n<td style=\"width: 36.0995%; text-align: right;\">9.9<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Less: Dividends<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">4.2<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">1.3<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"width: 50.6224%; text-align: left;\"><\/td>\r\n<td style=\"width: 29.9447%; text-align: right;\">8.7<\/td>\r\n<td style=\"width: 36.0995%; text-align: right;\">8.6<\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Repurchase of common stock and other equity transactions<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">(7.2)<\/span><\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">(2.7)<\/span><\/td>\r\n<\/tr>\r\n<tr style=\"height: 15px;\">\r\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Ending equity<\/td>\r\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">$1.5<\/td>\r\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">$5.9<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nPublicly traded corporations like Home Depot and Lowe\u2019s raise capital by either borrowing or selling stock on the open market. Distributions to owners are called dividends and are declared by the governing board of directors, rather than by individual owners. Note that ending equity for both Lowe\u2019s and Home Depot was less than beginning equity, even though both companies showed positive net income. That is because both companies are buying stock on the open market, hoping to reduce the number of shares of stock outstanding. Dividends, stock repurchasing, and net losses reduce equity, while issuing stock and net income increase equity. See http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=95223&amp;p=irol-reportsannual for a copy of Lowe\u2019s annual report.\r\n<h2>The Balance Sheet, revisited<\/h2>\r\nThe balance sheet, also known as the statement of financial position, shows the company's assets, liabilities and owners' equity (net worth). The asset portion of the balance sheet is generally broken into three broad categories: current assets, fixed assets (property, plant and equipment), and other non-current assets.\r\n\r\nAlthough each company is unique, every balance sheet shares one thing in common: total assets are always equal to the total of liabilities and equity. Below is a condensed version of the balance sheet for Home Depot for the fiscal year 2017.\r\n<h2>The Statement of Cash Flows, Revisited<\/h2>\r\nThe statement of cash flows shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.\r\n\r\nThe financial statements are augmented by an extensive set of footnotes. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements and are audited along with the financials.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice questions<\/h3>\r\nhttps:\/\/assess.lumenlearning.com\/practice\/c4ae7c6d-aed0-4fab-a941-a5787faeff5c\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Identify important information found on key financial statements<\/li>\n<\/ul>\n<\/div>\n<p>As you have seen, the financial statements summarize a massive amount of raw data, turning it into information that is presented in a specific format.<\/p>\n<h2>The Income Statement, Revisited<\/h2>\n<p>A multiple-step income statement begins with Net Sales, which is Gross Sales less Returns and Allowances and net of Sales Discounts.<\/p>\n<p>Cost of Goods Sold directly matches the cost of products sold against Net Sales. Often, a company then reports Gross Profit, which is Net Sales less Cost of Goods Sold. For instance, looking at The Home Depot, Inc. annual report (http:\/\/www.homedepotar.com\/financial-highlights.html) for the fiscal year 2017, Net Sales were $100.9 billion (rounded to the nearest billion) and Cost of Sales (aka Cost of Goods Sold) was $66.5 billion, giving a gross profit of $34.4 billion. That remaining amount of $34.4 billion goes to pay operating expenses, income taxes, and other costs of doing business.<\/p>\n<p>For The Home Depot, Inc., for the 2017 fiscal year, Selling, General, and Administrative expenses totaled $19.7 billion, leaving an operating income of $14.7 billion. Lowe\u2019s, Inc. shows an operating income of $6.6 billion.<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Typical Statement of Earnings<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">(Income Statement)<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Comparison of Home Depot to Lowe&#8217;s<\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<td style=\"text-align: center; width: 116.667%; height: 30px;\" colspan=\"3\">For the 2017 fiscal year (all monetary amounts in billions)<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px;\"><\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">Home Depot<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">Lowe&#8217;s<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px;\">Net Sales<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">$100.9<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">$68.6<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Cost of sales<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">66.51<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">45.2<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Gross profit<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">34.4<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">23.4<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Selling, general, and admin<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">19.7<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">16.8<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Operating income<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">14.7<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">6.6<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Other income and expenses<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">1.0<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">1.1<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.6224%; text-align: left;\">Net income before taxes<\/td>\n<td style=\"width: 29.9447%; text-align: right;\">13.7<\/td>\n<td style=\"width: 36.0995%; text-align: right;\">5.5<\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.6224%; text-align: left;\">Provision for income taxes<\/td>\n<td style=\"width: 29.9447%; text-align: right;\"><span style=\"text-decoration: underline;\">5.1<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right;\"><span style=\"text-decoration: underline;\">2.0<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.6224%; text-align: left;\">Net income<\/td>\n<td style=\"width: 29.9447%; text-align: right;\"><span style=\"text-decoration: underline;\">$8.6<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right;\"><span style=\"text-decoration: underline;\">$3.5<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Other income and expenses include interest expense and non-operating expenses. By separating out these non-operational amounts, operating income is more comparable across different companies. For instance, if Lowe\u2019s borrowed very little money and was mostly funded by owner contributions, and if Home Depot borrowed heavily, operating income would not be affected, even though other income and expenses would be quite different, affecting the bottom line significantly.<\/p>\n<h2>The Statement of Owners\u2019 Equity, Revisited<\/h2>\n<p>As discussed earlier, net income flows from the bottom line of the income statement to the statement of owners\u2019 equity. For publicly traded companies like Home Depot and Lowe\u2019s, the statement of owners\u2019 equity can be called the Statement of Shareholders\u2019 Equity or something similar. In any case, it shows changes in owners\u2019 equity, as follows:<\/p>\n<table style=\"border-collapse: collapse; width: 100%;\">\n<tbody>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Typical Statement of Owner&#8217;s Equity<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"text-align: center; height: 15px; width: 116.667%;\" colspan=\"3\">Comparison of Home Depot to Lowe&#8217;s<\/td>\n<\/tr>\n<tr style=\"height: 30px;\">\n<td style=\"text-align: center; width: 116.667%; height: 30px;\" colspan=\"3\">For the 2017 fiscal year (all monetary amounts in billions)<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px;\"><\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">Home Depot<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">Lowe&#8217;s<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px;\">Beginning equity<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">$4.3<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">$6.4<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Net income<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">8.6<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">3.5<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.6224%; text-align: left;\"><\/td>\n<td style=\"width: 29.9447%; text-align: right;\">12.9<\/td>\n<td style=\"width: 36.0995%; text-align: right;\">9.9<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Less: Dividends<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">4.2<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">1.3<\/span><\/td>\n<\/tr>\n<tr>\n<td style=\"width: 50.6224%; text-align: left;\"><\/td>\n<td style=\"width: 29.9447%; text-align: right;\">8.7<\/td>\n<td style=\"width: 36.0995%; text-align: right;\">8.6<\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Repurchase of common stock and other equity transactions<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\"><span style=\"text-decoration: underline;\">(7.2)<\/span><\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\"><span style=\"text-decoration: underline;\">(2.7)<\/span><\/td>\n<\/tr>\n<tr style=\"height: 15px;\">\n<td style=\"width: 50.6224%; height: 15px; text-align: left;\">Ending equity<\/td>\n<td style=\"width: 29.9447%; height: 15px; text-align: right;\">$1.5<\/td>\n<td style=\"width: 36.0995%; text-align: right; height: 15px;\">$5.9<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Publicly traded corporations like Home Depot and Lowe\u2019s raise capital by either borrowing or selling stock on the open market. Distributions to owners are called dividends and are declared by the governing board of directors, rather than by individual owners. Note that ending equity for both Lowe\u2019s and Home Depot was less than beginning equity, even though both companies showed positive net income. That is because both companies are buying stock on the open market, hoping to reduce the number of shares of stock outstanding. Dividends, stock repurchasing, and net losses reduce equity, while issuing stock and net income increase equity. See http:\/\/phx.corporate-ir.net\/phoenix.zhtml?c=95223&amp;p=irol-reportsannual for a copy of Lowe\u2019s annual report.<\/p>\n<h2>The Balance Sheet, revisited<\/h2>\n<p>The balance sheet, also known as the statement of financial position, shows the company&#8217;s assets, liabilities and owners&#8217; equity (net worth). The asset portion of the balance sheet is generally broken into three broad categories: current assets, fixed assets (property, plant and equipment), and other non-current assets.<\/p>\n<p>Although each company is unique, every balance sheet shares one thing in common: total assets are always equal to the total of liabilities and equity. Below is a condensed version of the balance sheet for Home Depot for the fiscal year 2017.<\/p>\n<h2>The Statement of Cash Flows, Revisited<\/h2>\n<p>The statement of cash flows shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills.<\/p>\n<p>The financial statements are augmented by an extensive set of footnotes. The notes typically describe each item on the balance sheet, income statement and cash flow statement in further detail. Notes to financial statements are considered an integral part of the financial statements and are audited along with the financials.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice questions<\/h3>\n<p>\t<iframe id=\"assessment_practice_c4ae7c6d-aed0-4fab-a941-a5787faeff5c\" class=\"resizable\" src=\"https:\/\/assess.lumenlearning.com\/practice\/c4ae7c6d-aed0-4fab-a941-a5787faeff5c?iframe_resize_id=assessment_practice_id_c4ae7c6d-aed0-4fab-a941-a5787faeff5c\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:300px;\"><br \/>\n\t<\/iframe>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-123\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Key Information in Financial Statements. <strong>Authored by<\/strong>: Freedom Learning Group. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":62559,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Key Information in Financial Statements\",\"author\":\"Freedom Learning Group\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"1524db92-f6f4-4d6c-a292-f67e1dce6a18, 48c311cf-e693-497b-824f-cbee312767c3","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-123","chapter","type-chapter","status-publish","hentry"],"part":103,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/123","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/users\/62559"}],"version-history":[{"count":14,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/123\/revisions"}],"predecessor-version":[{"id":4034,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/123\/revisions\/4034"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/parts\/103"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapters\/123\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/media?parent=123"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/pressbooks\/v2\/chapter-type?post=123"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/contributor?post=123"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/wm-accountingformanagers\/wp-json\/wp\/v2\/license?post=123"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}