Bloomberg Businessweek Case Studies Financial Statements Agenda Review

Bloomberg Businessweek Case Studies Financial Statements

Agenda • Review Bloomberg Businessweek article Blood, Fraud and Money Led to Theranos CEO’s Fall From Grace. • What is financial fraud. • Can understanding financial statements detect fraud. 2 • Identify how Disney makes money. • Calculate each segment’s contribution to Disney’s operating revenue and operating income. • Determine the primary elements of value for each of the company’s operating segments.

Two Decades of Financial Frauds 3

What is a Fraud Claims 4 Reality Using a single drop of blood, the company could run 90% of standard medical tests. Virtually all tests were run on existing competitors equipment, despite claims to the contrary. Would generate $100 million in sales in 2014 and $1 billion in 2015. Generated $100, 000 in sales in 2014 and virtually no sales in 2015. Deep mutually supportive relationships with the US military, and myriad drug testing companies. Most relationships, except Walgreens, were smoke and mirrors.

Creating Financial Statements Identify which elements belong in the balance sheet and income statement Amount Inventory SG&A Cash Common Stock Notes Payable Operating Expenses Interest Expense Net Sales Depreciation Expense Accounts Receivable Accounts Payable Cost of Goods Sold Gross PP&E Accumulated Depreciation Taxes Retained Earnings 5 6, 500 800 20, 000 150, 000 1, 200 1, 300 900 14, 000 850 9, 000 6, 000 5, 000 200, 000 45, 000 1, 300 ? Balance Sheet Income Statement

Creating Financial Statements Identify which elements belong in the balance sheet and income statement Amount Inventory SG&A Cash Common Stock Notes Payable Operating Expenses Interest Expense Net Sales Depreciation Expense Accounts Receivable Accounts Payable Cost of Goods Sold Gross PP&E Accumulated Depreciation Taxes Retained Earnings 6 6, 500 800 20, 000 150, 000 1, 200 1, 300 900 14, 000 850 9, 000 6, 000 5, 000 200, 000 45, 000 1, 300 ? Balance Sheet Income Statement

Creating Financial Statements Create an income statement from the financial data Amount Inventory SG&A Cash Common Stock Notes Payable Operating Expenses Interest Expense Net Sales Depreciation Expense Accounts Receivable Accounts Payable Cost of Goods Sold Gross PP&E Accumulated Depreciation Taxes Retained Earnings 7 6, 500 800 20, 000 150, 000 1, 200 1, 300 900 14, 000 850 9, 000 6, 000 5, 000 200, 000 45, 000 1, 300 ? Income Statement Net Sales Cost of Goods Sold Operating Expenses SG&A Depreciation Expense Interest Expense Taxes 14, 000 5, 000 1, 300 850 900 1, 300

Creating Financial Statements Organize the income statement by its categories Amount Inventory SG&A Cash Common Stock Notes Payable Operating Expenses Interest Expense Net Sales Depreciation Expense Accounts Receivable Accounts Payable Cost of Goods Sold Gross PP&E Accumulated Depreciation Taxes Retained Earnings 8 6, 500 800 20, 000 150, 000 1, 200 1, 300 900 14, 000 850 9, 000 6, 000 5, 000 200, 000 45, 000 1, 300 ? Income Statement Net Sales Cost of Goods Sold Gross Profit 14, 000 5, 000 9, 000 Operating Expenses SG&A EBITDA 1, 300 800 6, 900 Depreciation Expense EBIT 850 6, 050 Interest Expense EBT 900 5, 510 Taxes Net Income 1, 300 3, 850

Creating Financial Statements Create a balance sheet from the financial data Amount Inventory SG&A Cash Common Stock Notes Payable Operating Expenses Interest Expense Net Sales Depreciation Expense Accounts Receivable Accounts Payable Cost of Goods Sold Gross PP&E Accumulated Depreciation Taxes Retained Earnings 9 6, 500 800 20, 000 150, 000 1, 200 1, 300 900 14, 000 850 9, 000 6, 000 5, 000 200, 000 45, 000 1, 300 ? Balance Sheet Cash Accounts Receivable Inventory Gross PP&E Accumulated Depreciation Net PP&E Accounts Payable Notes Payable Common Stock Retained Earnings 20, 000 9, 000 6, 500 200, 000 45, 000 155, 000 6, 000 1, 200 150, 000 33, 300

Creating Financial Statements Organize the income statement by its categories Amount Inventory SG&A Cash Common Stock Notes Payable Operating Expenses Interest Expense Net Sales Depreciation Expense Accounts Receivable Accounts Payable Cost of Goods Sold Gross PP&E Accumulated Depreciation Taxes Retained Earnings 10 6, 500 800 20, 000 150, 000 1, 200 1, 300 900 14, 000 850 9, 000 6, 000 5, 000 200, 000 45, 000 1, 300 ? Balance Sheet Assets Current Assets Cash Accounts Receivable Inventory Non-Current Assets Gross PP&E Accumulated Depreciation Net PP&E Total Assets Liabilities Current Liabilities Accounts Payable Notes Payable Equity Common Stock Retained Earnings Total Liabilities and Equity 20, 000 9, 000 6, 500 200, 000 45, 000 155, 000 190, 500 6, 000 1, 200 150, 000 33, 300 190, 500

Case Study Read the case and answer the case questions. Identify how Disney makes money. Calculate each segment’s contribution to Disney’s operating revenue and operating income. Determine the primary elements of value for each of the company’s operating segments. The BLOOMBERG TERMINAL service and Bloomberg data products (the “Services”) are owned and distributed by Bloomberg Finance L. P. (“BFLP”) except that Bloomberg L. P. and its subsidiaries (“BLP”) distribute these products in Argentina, Australia and certain jurisdictions in the Pacific islands, Bermuda, China, India, Japan, Korea and New Zealand. BLP provides BFLP with global marketing and operational support. The following are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries: BLOOMBERG, BLOOMBERG ANYWHERE, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG PROFESSIONAL, BLOOMBERG TERMINAL and BLOOMBERG. COM. Absence of any trademark or service mark from this list does not waive Bloomberg's intellectual property rights in that name, mark or logo. All rights reserved. 11