Examine various financial aspects of Deere & Company. These examinations will culminate in a summative evaluation of the company in your Final Project. Start by reviewing the Final Project instructions in Week 6. Then, download and review the appropriate quarterly and annual report for Deere & Company based on the following instructions.
As you will explore throughout this course, financial data plays a critical role when it comes to making business decisions for an organization. There are three primary financial statements: Income Statement, Balance Sheet, and the Statement of Cash Flows. For this assignment, assess the characteristics of each financial statement by addressing the following components:
List the primary sections found in each of the financial statements.
Explain how each financial statement provides useful information that is not available in the other financial statements.
Explain how each financial statement provides unique information that can be useful when making business decisions.
Operating Expenses: Costs incurred in the normal course of business, such as selling, general, and administrative (SG&A) expenses.
Operating Income: Gross Profit minus Operating Expenses.
Other Income/Expenses: Non-operating gains or losses, such as interest income/expense.
Net Income: The company's total profit after all expenses and taxes have been deducted.
Balance Sheet:
Assets: What the company owns.
Current Assets: Assets expected to be converted to cash within one year (e.g., cash, accounts receivable, inventory).
Non-current Assets: Long-term assets not expected to be converted to cash within one year (e.g., property, plant, and equipment (PP&E), intangible assets).
Liabilities: What the company owes to others.
Current Liabilities: Debts due within one year (e.g., accounts payable, short-term debt).
Non-current Liabilities: Long-term debts (e.g., long-term loans, bonds).
Equity: The residual claim on the assets after liabilities have been paid. This represents the owners' stake in the company (e.g., retained earnings, common stock).
Equation: Assets = Liabilities + Equity
Statement of Cash Flows:
Cash Flow from Operating Activities: Cash generated or used by the company's core business operations.
Cash Flow from Investing Activities: Cash used for or generated from investments, such as buying or selling long-term assets or securities.
Cash Flow from Financing Activities: Cash generated or used in transactions with investors and creditors, such as issuing stock, paying dividends, or taking on new debt.
Net Increase/Decrease in Cash: The total change in cash over the period.
2. Unique Information Provided by Each Statement
Each financial statement captures a different aspect of a company's financial story. The Income Statement tells a story of profitability over a specific period, such as a quarter or a year. It's the only statement that details a company's sales and expenses, culminating in its net income or loss. You can't find this detailed breakdown of operating performance on the other two statements.
The Balance Sheet offers a static snapshot of a company's financial position at a single point in time. It provides a detailed list of assets, liabilities, and equity, revealing the company's financial structure and its overall solvency. Unlike the other statements, it presents the fundamental accounting equation, showing what a company owns, owes, and the owner's stake.
The Statement of Cash Flows is crucial because it tracks the actual movement of cash. While the Income Statement may show a profit, the company might not have sufficient cash due to non-cash expenses like depreciation or long accounts receivable collection periods. The cash flow statement bridges this gap, providing a clearer picture of a company's liquidity and ability to meet its short-term obligations and fund future growth.
Sample Answer
The Financial Statements of Deere & Company
The three primary financial statements—the Income Statement, Balance Sheet, and Statement of Cash Flows—each provide a unique lens for examining the financial health of Deere & Company. By analyzing them together, stakeholders can gain a comprehensive understanding of the company's performance and position.
1. Primary Sections of Each Financial Statement
Income Statement:
Revenues: All income generated from the sale of goods and services.
Cost of Sales/Cost of Goods Sold (COGS): The direct costs attributable to the production of goods sold by the company.
Gross Profit: Revenues minus COGS.