FINANCIAL
STATEMENT ANALYSIS 1-17
·
On the Balance Sheet,
G
ROSS
F
IXED
A
SSETS
(capitalized
purchases of property, plants, and equipment) are listed at their
purchase price. Accumulated
D
EPRECIATION
(sum of all
depreciation charges over the life of the assets currently on the
company's Balance Sheet) is deducted to arrive at
N
ET
F
IXED
A
SSETS
.
N
ET
F
IXED
A
SSETS
can be considered as an estimate of the
value of those assets for the remainder of their useful lives.
These principles will also be important in the next section as we
analyze the Cash Flow Statement.
·
On the Income Statement, the total
D
EPRECIATION
for the
period for all
C
APITALIZED
A
SSETS
is deducted from earnings as
an
O
PERATING
C
OST
.
Summary
The Income Statement summarizes a company's operational expenses
and profitability over a given period of time. The total value of goods
and services sold by a company after deducting all operating costs is the
N
ET
O
PERATING
I
NCOME
. The deduction of interest, taxes, and
shareholder dividends results in the amount of earnings retained by the
company to support operations.
D
EPRECIATION
is a non-cash bookkeeping entry on the Balance Sheet and
on the Income Statement. On the Balance Sheet, it is the sum of all
depreciation charges over the life of the fixed assets. On the Income
Statement, it represents the portion of the value of a fixed asset that has
been used up for operations during the period.
You have completed the "Income Statement" section of Financial Statement Analysis. Please
complete the Progress Check and then continue with the section on "Cash Flow Statement." If
you answer any questions incorrectly, please review the appropriate text.