One of the attributes of financially successful companies like P&G is their consistent growth over time in terms of primary measures of financial performance, such as net sales and net earnings. Net sales, measuring the value of merchandise sold less returns, increased from $43,377 million in 2003 to $51,407 million in 2004 and to $56,741 million in 2005. This represents an approximate 18.5 percent increase in 2004 and approximately 10.3 percent in 2005 or a combined increase for the two years of an impressive 28.8 percent. Net income, which starts with sales and is reduced by various expenses required to generate those sales, increased from $5,186 million in 2003 to $6,481 million in 2004 (an approximate 25 percent increase) and to $7,257 million in 2005 (an approximate 12 percent increase) or a combined increase for the two years of approximately 37 percent. These figures represent impressive financial performance in terms of the company's ability to provide goods to its customers and to operate in a manner that results in a profit that benefits the company's stockholders.
AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
Compute earnings per share. |
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Describe how irregular income items, such as discontinued operations and extraordinary items, are presented in the income statement. |
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Distinguish between basic and diluted earnings per share. |
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Describe and prepare a statement of retained earnings. |
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Account for cash dividends and stock dividends, and explain the effects of these transactions on a company's financial statements. |
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Define prior period adjustments, and explain how they are presented in financial statements. |
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Define comprehensive income, and explain how it differs from net income. |
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Describe and prepare a statement of stockholders' equity and the stockholders' equity section of the balance sheet. |
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Illustrate steps management might take to improve the appearance of the company's net income. |