Question

1. What are the four major financial statements, and what does each report and for which period?
2. How is the market value of a company’s brand or trademark (such as the Mickey Mouse trademark for Disney) reflected in the company’s financial statements?

Answer 1

Sol: The four major financial statements are: balance sheets, income statements, cash flow statements & statements of shareholder's equity.

1) Balance Sheet: It is a financial statement that reports a company's assets, liabilities & shareholders equity at a specific point in time.They are usually prepared at the close of an accounting period such as month-end, quarter-end, or year-end.

2) Income Statement: It is a financial statement that primarily focuses on a company's revenues & expenses during a particular period.They can cover any period of time for which you want information,from a particular week to a span of mutiple years.

3) Cash Flow Statements: It is a financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations & external investment sources during a given period. Generally, the period of time is the same as the income statement.

4) Statement Of Shareholder Equity: It is a financial statement that reports the retained earnings at the start of the year,net income,dividends paid & the amount of retained earnings at the end of the year.

Now, to understand how the market value of a company's brand or trademark reflects in the company's financial statements,consider an example:- Suppose if you borrow money from a bank,then you have to list the value of all your major assets & liabilities as bank uses this information to assess the strength of your financial position like quality of your assets such as your car & house & then put a conservative valuation upon them.The same goes for liabilities as the bank ensures that the mortgages & credit card debt are appropriately disclosed & fully valued.Thus, they calculate your net worth by subtracting the total value of liabilities from the total value of assets.The same goes for a company like mickey mouse,except investors need to take another step & consider that financial position in relation to market value.