This is the third section of your SEC 10K project: Balance Sheet and Statement of Owners Equity
The goal of these projects, and the end of course SEC10K, is to use your knowledge of accounting concepts tell a story about the corporations business environment, operational performance, and financial position.
REQUIREMENT: Between Weeks 2 and 6, you will develop one part of the SEC 10K project. In each of the projects you are to prepare a formal business report addressing each assignments requirements. You should incorporate the accounting terms/concepts learned in your assigned readings to demonstrate an understanding of accounting terms/concepts, using these concepts to explain to your chosen corporations financial statements to the companys Senior Management. The goal is to develop important business writing skills, incorporating accounting concepts/terminology explanations to help management read/interpret the financial reports. Week 4 will focus on your Corporations Balance Sheet and Statement of Owners Equity.
Review your SEC 10-K companys Balance Sheet (statement of position).
Your SEC 10-K company communicates its philosophy and financing strategy on the balance sheet by reporting assets and liabilities. First, what is Working Capital? It is calculated as:
Current Assets Current Liabilities = Working Capital
Working capital (WC) may be negative if current liabilities (CL) exceed current assets (CA). What does this indicate about the corporations financial position if this occurs? Is this a cause for concern? How does your SEC 10-K company address this issue? Do they discuss strategies for overcoming negative working capital?
The basic accounting equation is Assets Liabilities = Owners Equity. This basic equation is illustrated by reporting assets, liabilities, and owners equity on the balance sheet. If the owners equity is positive, this is a favorable position. For some companies, especially if they recently recapitalized with debt, there may be negative equity. Discuss your corporations financial position reported on the balance sheet.
Consider the classified balance sheet. What is a classified balance sheet? How is a classified balance sheet different from a more traditional balance sheet format that lists all assets and liabilities as one total? What is the benefit of creating subtotals within assets and liabilities to separate current from non-current?
Review your SEC 10-K companys Statement of Owners Equity (or a similar name such as the statement of retained earnings, or statement of stockholders equity, etc.).
The change in the value of retained earnings from the beginning of the year to the end of the year is reported in this statement. What are retained earnings? What does the retained earnings balance represent? What is it an accumulation of over the life of a corporation?
When cash dividends are paid, they are funded from the accumulated profits of the corporation (retained earnings). Thus, dividends decrease retained earnings. If net income and other credits to retained earnings exceed the value of dividends paid during the period, retained earnings may increase. If they do not exceed the dividends paid, retained earnings likely decrease.
What do you learn about dividends for your SEC 10-K company? Did they issue dividends? What are the risks and opportunities of issuing dividends to shareholders each year?
