Master the technical skills needed to analyze financial statements and disclosures for use in financial analysis, and learn how accounting standards and managerial incentives affect the financial reporting process. By the end of this course, you’ll be able to read the three most common financial statements: the income statement, balance sheet, and statement of cash flows. Then you can apply these skills to a real-world business challenge as part of the Wharton Business Foundations Specialization.
1.5: 3M Company: Tour of an Annual Report
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來自 University of Pennsylvania 的課程
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從本節課中
Week 1: Introduction and Balance Sheet
To learn a foreign language like Accounting, you need quite a bit of practice in the basic foundations (grammar, syntax, idioms, etc.). This material is absolutely essential for being able to read and to understand books written in the language (in our case, financial statements.). This week, we will start building these foundations. We will start with an overview of financial reporting. What types of reports are required? Who makes the rules? Who enforces the rules? Then, we will cover the balance sheet equation and define/discuss Assets, Liabilities, and Stockholders' Equity. We will introduce debit-credit bookkeeping and do lots of practice in translating transactions into debits and credits. Finally, we will introduce a case of a start-up company to provide you insights into all of the steps necessary to go from recording the first transactions of a new business all the way through its first set of financial statements.
與講師見面
Brian J BusheeThe Geoffrey T. Boisi Professor
Accounting
Hi, I'm Professor Brian Bushee.
Welcome back.
Wow, what a long week of watching videos on the accounting basics.
So, what I want to do in the last video each week,
is look at a real financial statement.
So that we can take the things that we learned in the lectures, and
see how they play out in a real world financial statement.
And to do this, I want to use the same financial statement throughout the course.
The statement I chose is the 3M company.
In case you haven't noticed, I'm from Minnesota.
There's a Vikings helmet over here and some hockey helmets.
And a Gopher helmet over here.
My dad worked for 3M.
My grandmother worked for 3M for 40 years.
It's a company I have some affinity for.
Hopefully I won't find anything bad in the report.
What we'll do in this video though,
is take a quick tour of everything that's in the annual report.
So that you have sort of an overview of where we're going to find things.
And at the end of every week, we'll dive in, in more detail and
try to find that week's topics in the 3M annual report.
Hope you enjoy the video.
So we pull up the 3M annual report.
And there's a nice glossy cover.
Some smiling kids, some benign looking chemicals.
There it looks like there are people writing on forms.
And then kids drawing pictures.
Oh wait, I think I get the theme.
There's, first the science of 3M.
And then there's the impact they have on smiling, happy children.
Anyway.
We go to the next page and you get a letter from the chairman and CEO.
So this is his explanation of how the company did during the past year.
We get some graphs showing that everything's going up.
Looks like everything is going well with 3M.
Then we get a financial summary.
By the end of the course, you will not only know what all of these terms mean.
But you will realize that this is not enough information to
know what's going on at 3M.
We have to read through the entire annual report.
And if we go to the next page, we get this very ominous-looking black and white page.
Starts with United States Securities and Exchange Commission at the top, form 10K.
From this point forward, we're looking at the filing to the SEC.
And so everything that 3M says or reports here, is subject to all the laws and
the Securities and Exchange Acts of 1934.
And full SEC enforcement.
So, this is the point where things start to get serious.
Then if we go to the next page it gives us the table of contents.
So, its a quick overview.
And, part one of the report we're going to learn a lot about the business.
You know, what I'm going to do in a second is just flip through a lot of
these quickly.
You'll look at these much more carefully as we go on later in the course.
Part two, is going to give us the financial information.
Key things we're going to find here are the management discussion analysis.
And of course the financial statements.
Which are the star of the show.
And then part three, gives us proxy related information, the directors,
officers, how much they're paid.
And then there's any supplemental exhibits in part four.
Part one has the information about the business.
And again, I'm just going to flip through this very quickly.
If you want to go and read it in more detail, see what kind of things are there.
It'll be available on the course platform.
And as you can see it's not that long.
So we just got through part one.
And part two starts some information on stock price, selected financial data.
Now, here's the big thing management discussion analysis.
This is where management tries to explain to
the users of the financial statements, what happened during the year.
So all the numbers that changed, went up, went down or didn't change.
Tries to provide some kind of explanation so
that users can understand the financial statements.
Although management is being very helpful by giving us all this
detailed explanation on what they think happened during the prior year.
We still want to be a little skeptical.
After all, there have been some companies which have had some big frauds.
Where they've written about things that have happened in the section that,
you know, didn't really happen.
So I like to look at the financial statements and the footnotes first.
Come up with my own theories for what happened.
And then come and see what management's saying about it.
Just as a reality check of whether I can believe what they're saying.
So flipping through here, you can see it's going to be pretty extensive and detailed.
There it's talking about the income statements, business segments.
[SOUND].
Geographic segments.
[SOUND].
Financial condition and liquidity.
So we're starting to get some cash flow information.
And we're going to come back and
look at these once we've learned about all of these topics later in the course.
There's disclosures about market risk.
And then we finally get to the financial statements.
Which, as I said, I think are the stars of the show.
Notice here, that there's two pages of reports.
Six pages for the actual financial statements.
And then 66 pages of footnotes.
Which, right away tells you that the financial statements are probably not
going to have all the information we need.
We're going to have to dive into these footnotes to really learn what we need to
learn about the company.
And we're going to be doing a lot as we go through the course,
is looking at the details of the footnotes.
because that's where all the action is.
On the next page, we see two of the reports.
Management's Responsibility for Financial Reporting and Internal Controls.
So as we talked about in earlier lectures, management is responsible for
putting together the financial statements.
Now of course, they come in.
We hire an auditing firm.
Public accounting firm to provide, as they say, an opinion.
So the auditing firm says, in our opinion.
The consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of 3M Company.
And its subsidiaries at December 31, 2012 and 2011.
And result of operations and
cash flows for the three years ending December 31, 2012.
In conformity with accounting principles generally accepted in
the United States of America.
I want to jump in here to point out what the auditor is actually saying here.
They're not saying we are giving you an ironclad guarantee,
that 100% of the things in this statement are completely accurate and true.
And you can bet your life on that.
Instead they're saying,
in our opinion these financial statements present fairly in all material respects.
The financial position, results of operations in conformity with US gap.
. In other words, we've gone and
looked at some of the big things that they're doing.
They seem to be following the rules, at least in our opinion.
So as we've talked about in earlier videos,
the auditors give us a little bit of insurance, assurance.
But we still need our own healthy dose of skepticism when reading these statements.
Because, we cannot fully reply on what the auditors have done in terms of
guaranteeing the accuracy of everything in these statements.
The rest of the report talks about internal controls.
Thanks to Enron and the Sarbanes-Oxley Act There's a lot of
focus now on internal controls that have, companies have.
Auditors have to audit the internal controls.
It's a big part of the job.
It's not something we're really going to talk about in this course.
Then we see the income statement, balance sheet, statement of stockholders equity.
Statement of cash flow.
We'll come back and look at these as we learn more material.
And then the footnotes start and go on, and on, and on.
And on, and on, and on.
And on, and on and on.
[SOUND].
Wow, still not through the footnotes yet.
[SOUND].
Still not, okay.
Went too fast.
There we go, so the footnotes, 66 pages.
Seems very intimidating and very daunting now.
But don't worry.
By the end of the course, you'll be able to work your way through a lot of these
and understand what's going on.
The last parts of the report are part three.
Which gives us the proxy information, directors, officers, comp.
We're not going to talk about these,
you can look through them if you're interested.
Last part is any exhibits or financial statement schedules.
Most of those were incorporated within the financial statements.
And, we finally wrap up on page 124.
Which makes this a fairly short annual report [LAUGH] these days.
I recently used Sony's annual report in my elective class.
And that one came in at 279 pages.
And I made my students responsible for knowing everything in those 279 pages.
So, you're getting off a little bit easy here.
So that was a quick overview of the 3M annual report.
As I mentioned, every week we will come back to it to try to find what we've
talked about during that week's video lectures in the 3M financial statements.
And then during the last week of the course,
we're going to pick a different financial statement.
And do a deep dive through that statement to try to find all the things that we've
learned about during the course.
So, thanks for sticking with me.
I, I realize it was probably a tough week of videos.
Trying to get these basics down of debits and credits.
And all the vocabulary and accounting language.
But, hopefully you stick with it.
We've got a couple more tough weeks ahead of us.
But I think you'll find,
by the end of the course it'll be worth it if you stick with us.
Hope to see you next week.
