BUS 320 Lecture Notes - Lecture 2: Retained Earnings, Balance Sheet, Income Statement

• School: NCSU
• Department: Business Management
• Course: BUS 320
• Professor: Bartley R Danielsen

Document Summary

Presented in stair-step or progressive fashion to examine profit or loss after each type of expense item deducted. Sales cost of goods sold (cogs) Gp expenses depreciation = earnings before interest and taxes (ebit) or. Ebit interest = earnings before taxes (ebt) Ebt taxes = earnings after taxes (eat) or net income (ni) Common stockholders (receive dividends after preferred stockholders) Interpreted in terms of number of outstanding shares. May be paid out in dividends or retained by company for subsequent reinvestment. Table 2-2 statement of retained earnings. Compares current price of common stock to earnings per share. Indicates expectations about the future of a company. Allows relative market value comparison of many companies. Firms with higher expected returns have higher p/e ratio. Drop in earnings may not match magnitude of falloff in earnings, which causes increase in p/e ratio. Table 2-3 price-earnings ratios for selected u. s. companies. Income gained or lost during given period is function of verifiable transactions.