FIN4060 Final Project

Income statement is a key financial statement that reports on an organizational profitability during a short time for any time period. Investors needs to understand the income statement so as they can analyze the profitability and the future growth of any organization as this plays a bigger role in determining if investments would be made or not (Easton, 2018). The tree items from the income statement that are important to an investor includes;

Sales; the sales of a given organization can be a determinant as to whether an investor can be willing to invest in an organization or not. For instance, the sales are a representative of the total market share of an organization. Comparing the total sales of a company with the previous years, you can get a total representation of the company growth in total (Abernathy et al. 2017).

The second aspect is the gross profit margin. This is computed by getting a percentage of the difference between the sales and the operating expenses divided by the total sales. By computing and analyzing the gross profit margin, once is able to determine how the company is doing and the total revenue that it can generate from its operating activities (Lauren and Watta 2019, December).

The third aspect is the net profit margin. This can be computed by the getting a percentage after dividing the net profit by the total sales. Investors are keen in evaluating this aspect as it helps in determining the revenue that is generated from the capital that is being employed by the investor and the investors uses it in determining if they have attained the intended return.

This shows that Cisco Systems has higher sales as compared to Dell technologies. Its gross profit margin is also higher net profit is higher. This shows that between this two companies, an investor would most likely choose Cisco Systems (Abernathy et al. 2017).

The balance sheet is another aspect that may be taken into consideration and some of the items that are very important and should be taken into consideration by an investor includes;

Cash- cash is the major aspect that can be taken into account as the organization which generates most cash means that they are certainly doing a better job in satisfying their customers and the y are getting paid. However, an organization that has too much cash can raise worried whereas also having too little cash can raise more red flags.

The other aspect that can be taken into consideration is the current liabilities as this are the obligations that are due in a year. Fundamental investors always choose the organizations that has fewer liabilities than their assets especially when this is compared against the cash flow. Investing in an organization that may be having more debts that what they have may bring about many suspicions and are certainly in trouble (Bogićević et al. 2016).

Equity is equal to the assets minus the liabilities as this is a representation of how much an organization have claims to. Investors need to pay more attention in valuing the retained earnings and paid in capital in this part. Paid in capital shows the initial investments amount which has been paid by the stockholders for their own advantages. Compare this to additional paid in capital to show the equity premium investment paid over par value. Retained earnings indicates the amount or profit that the firm invested or reinvested to pay down debts, rather than distributed to shareholders as dividends,

From the balance sheet, it’s clear that Cisco systems also has more cash.

In comparing both the companies, it’s clear that both the companies are close in terms of cash, but Cisco Systems has a higher current liabilities as compared to that of Dell technologies. Dell has less retained earnings as compared to Cisco systems meaning the Cisco systems has more funds to invest in further projects and research. Hence Cisco Systems is more favorable when comparing the financial analysis and the balance sheet as compared to that of Dell technologies (Lauren and Watta 2019, December).

References

Abernathy, J. L., Beyer, B., Gross, A. D., & Rapley, E. T. (2017). Income statement reporting discretion allowed by FIN 48: Interest and penalty expense classification. The Journal of the American Taxation Association, 39(1), 45-66.

Lauren, P., & Watta, P. (2019, December). A Conversational User Interface for Stock Analysis. In 2019 IEEE International Conference on Big Data (Big Data) (pp. 5298-5305). IEEE.

Bogićević, J., Domanović, V., & Krstić, B. (2016). The role of financial and non-financial performance indicators in enterprise sustainability evaluation. Ekonomika, 62(3), 1-13.

Easton, M., & Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.