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Companies create financial statements to provide information to potential investors and creditors, help current investors evaluate the health and performance of the company, and summarize the company's resources, so the government can tax them appropriately. I've selected the annual report from 2008 for the Washington Post Company, just to give you an idea of what the annual report for large company might look like. I have started out with the income statement, which summarizes the company's income as a function of all income and that includes sales revenue, investment income, and takes out operating expenses and taxes.
And like most companies, the Washington Post Company displays multiple years of data. So for example, we have data from 2008, 2007, and 2006, and they use that as a comparison so that investors and regulators will have an idea of what the trends within the company look like. It also breaks down the operating revenues and other costs and expenses by category. So the way the Washington Post breaks down their operating revenues is by Education. They own the Kaplan educational publishing service, so they list that separately.
Also, they gain revenue from advertising in the Washington Post and elsewhere. Circulation and Subscriber Income and then other income, whatever that might be. The next element, Operating Costs and Expenses, just shows how the Washington Post spends their money in running the company. You've got general operating expenses, sales general, administrative, depreciation, which we'll cover in Chapter 10 of this course, and so on. And you also have Income from Operations, and that includes interest income, so that would be from any investments that the Washington Post Company happens to have.
And then you also see Income Before Income Taxes and the Cumulative Effect of Change in Accounting Principle. What that means is that the government changed a rule or regulation and the Washington Post needed to account for things differently then they had done in the past. That made for a change in their accounting results. So they are just accounting for it here in their annual report. So that is the highlight of the income statement, and if you continue on, you'll see a balance sheet.
And a balance sheet summarizes a company's assets and liabilities. Current Assets are cash or items that could be converted to cash within a year, and Current Liabilities are liabilities that must be paid within a year. So for example, for the Current Assets, the Washington Post Company has Cash and cash equivalents, those are the things such as bonds or notes that could be sold immediately or at least within a year. So that they could get cash out of them. Accounts receivable are also considered current assets. Those are generally due within 30 to 90 days.
Deferred income taxes are current assets because it's the money that company still has on hand. Inventory can be converted to cash through sales, so it's also included and other current assets are just anything else that the company could convert to cash. When you get away from the Current Assets, you get into the assets that cannot be converted to cash readily. Buildings, takes a long time to sell them. You can't turn them into cash. Same thing for machinery, equipment and fixtures and land and so on. So those are the highlights of the balance sheet.
Next we have the Stockholders' Equity statement. The Stockholders' Equity statement summarizes the company's value to its shareholders by detailing the value of the stock sold, investment income, and it's balance. It also shows current liabilities which impact the value of the company to shareholders, because the more money the company owes to outside sources, the less it has to distribute to shareholders as either a dividend or another sort of payment. So you have accounts payable and accrued liabilities, income taxes that are due, and any deferred revenue.
This is revenue that is not on the books this year, but it might be next year. Then you also have short-term borrowings and those need to be repaid again within a year for them to be considered a current liability. So you also have pension funds, other commitments and contingencies and this is where you get into the Common Shareholders' Equity. The Common Shareholders' Equity refers to shares of common stock. You generally have two types of stock for a company. One is preferred stock, which gets paid first, before the common stock and often at a higher rate of dividend or payment per share than the common stock.
So that's usually counted separately. When you get to the general shareholders, people like you and me who purchase shares from a stockbroker or through an online service, then that's where this information comes in. That's the Common Shareholders' Equity. So you have the number of shares of common stock, whether it's divided into classes and different types of income or retained earnings, simply money left over from previous years that wasn't invested or spent by the company. And all of those items represent aspects of Shareholder Equity.
Finally, we have the company's Cash Flow Statement, and the Cash Flow Statement simply summarizes how the company earns and spends its cash. Companies generate and spend cash through operations which includes sales, financing through stock and other issues and through investments. So this just breaks it down. You have the Net Income at the top, and the details as you go along. So you can have as much or as little detail as you like. The government requires a significantly detailed level of reporting from public companies. That is, those that are traded on the stock exchange.
So that's where you get a lot of these details. Privately held companies do not need to file this sort of form with the government. You can find the Corporate Financial statements on the Security and Exchange Commission's website. Just look for the EDGAR database and search for the 10-K form of the company you want to investigate.
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