FINANCIAL
STATEMENT ANALYSIS 1-15
The remaining Income Statement accounts are as follows.
·
I
NTEREST
E
XPENSES
amount of interest paid on the company's
loans, notes, and bonds during the period
·
E
ARNINGS
B
EFORE
T
AXES
N
ET
O
PERATING
I
NCOME
minus
I
NTEREST
E
XPENSES
·
T
AXES
amount of taxes paid by the company during the period.
Many companies provide the total tax assessment percentage on the
Income Statement.
·
N
ET
I
NCOME
B
EFORE
P
REFERRED
D
IVIDEND
amount of income
available for distribution to shareholders; calculated as
E
ARNINGS
B
EFORE
T
AXES
minus
T
AXES
·
P
REFERRED
D
IVIDEND
amount distributed to preferred shareholders
during the period
·
N
ET
I
NCOME TO COMMON
amount available for distribution to
common shareholders or for internal use
·
C
OMMON
D
IVIDEND
amount distributed to common shareholders
during the period
·
E
ARNINGS
R
ETAINED
amount held by the business to continue
operations
Shareholder Return on Investment
Appreciation in
value / dividends
There are two ways that a shareholder can receive a return on
investment. One is the appreciation in value of the shares of the
company (based on the future prospects of the company). The
other is a cash payment (dividend) paid by the company to the
shareholders. Many companies do not pay dividends to common
shareholders, especially growing companies with lots of investment
opportunities. We will discuss the methodology for determining the
value of stocks later in the course.