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Financial Management: Preparing Income Statements

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Consider the following income statement for the Heir Jordan Corporation:

Income Statement
Sales $43,800
Costs 34,800
Taxable income $9,000
Taxes (35%) 3,150
Net income $5,850
Dividends $3,300
Addition to retained earnings 2,550

The projected sales growth rate is 12 percent.

Prepare a pro forma income statement assuming costs vary with sales and the dividend payout ratio is constant.

Pro Forma Income Statement
Sales $
Taxable income $
Net income $

What is the projected addition to retained earnings?

Retained earnings $

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Solution Preview

Payout Ratio=3300/5850=56.41%

Pro Forma Income Statement
Sales 43800*(1+12%) ...

Solution Summary

Solution prepares a pro forma income statement with the help of given projections. It also calculates the net addition to the retained earnings.

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Analyzing annual reports for BP, Quicksilver Inc., and RTL Group

Discuss each of the following terms. Your discussion should expand on the definition as given in the course terms. Explain why this concept is important to financial statements.

A. Generally Accepted Accounting Principles.

B. Double Entry Accounting.

C. Historical Cost.

D. Accrual Basis vs. Cash Basis Accounting.

E. Current Assets and Liabilities vs. Non-Current Items.

Refer to the following three sets of annual reports which contain the financial statements. You may find the financial data independent of the annual report for Google. (Make sure you use the latest financial statements -- for the year 2007, or later if available). First read an overview of the company so you are familiar with the company, its products/services and markets and then review the annual report and supplemental financial statements.

1. BP (http://www.bp.com)

BP Financial Statements and Annual Report

http://www.bp.com/extendedsectiongenericarticle.do?categoryId=9021605& contentId=7040949

2. Quicksilver Inc. (http://www.quicksilverinc.com)

QuickSilverInc Annual Report and Financial Statements


3. RTL Group (http://www.rtlgroup.com)

RTL Group Annual Report and Financials


Locate the following on each of the statements:

The Balance Sheet

The Income Statement

The Statement of Cash Flows

Describe the general organization of each of the three sets of financial statements. Which is more useful in your opinion for each of the three companies: Net Income or Cash from Operating Activities?

Predict companies' future trends using Net Income or Cash Flows. Reach one additional conclusion about each company from the additional information you find in the annual report. Since a several of these companies are conglomerates, discuss how you can find out relevant information about individual segments, such as the IDOLS segment of the RTL Group's Fremantle Media North America.

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