Understanding Financial Statements (John Deere)
What 3 items of important information does the income statement reveal about the financial performance of the company over the last three years?
As we could see from financial statement of John Deere Company, the sales are decreasing for past three years (2013-2015 – the latest available data). There was almost $35 billion of Sales in 2013 and only nearly $25.7 billion in 2015. This is the major fact of financial performance. As a result, Net Income failed to $1.9 billion in 2015 from $3,53 billion in 2013 (second fact). And the last fact is that Total Costs are decreasing as well – from $32,3 billion in 2013 to $26 billion in 2015.
2) What 3 items of important information does the balance sheet reveal about the financial position of the company over the last two years? As for Balance Sheet, the first fact is Assets are decreasing (from $61,3 billion in 2014 to $58 billion in 2015). Liabilities and Equity are decreasing as well – from $61,3 billion in 2014 to nearly $58 billion in 2015. Key point in this decreasing are changes in Stockholders’ Equity – it decreased from $9 billion in 2014 to $6,7 billion in 2015
3) Can you identify the major sources of funding used by the company from the information presented in the company's annual report? Please look at the Statement of Cash Flows, formerly called the Source and Uses of Funds Statement. Major source of funding is Operational Activity (for all three years). The second source – is financial activities (borrowing, especially long-term borrowings)4) Who is responsible for:
a) the issuance, and
b) the content
of the company financial statements? (Note: this information may be difficult to find. Look for statements by management and the independent auditing firm.) Unfortunately, I didn’t found concrete information about who is responsible for issuance and content. In statement by management and independent auditing firm’s report (by Deloitte & Touche LLP) it was generally named “company’s management”. For example, in auditing firm’s report there is a line: “The Company’s management is responsible for these financial statements and financial statement schedule”.
5) What assurance, if any, is there that the financial statements are in compliance with GAAP, and are free of material misstatements? There are two types of control – internal (by company’s management) and external (by independent audit). Both this instruments of control allow to be sure that financial statements are in compliance with GAAP, and are free of material misstatements.
6) Of what use, if any, are the notes to the financial statements? Give an example of something learned from the footnotes of your company. There are not much I’ve learned from notes to financial statements. Nevertheless, there is one fact that I’ve found interesting – as John Deere performs business in different countries it was interesting to know how company convert foreign currencies into U.S. dollars. According to notes, income in foreign currency converts into U.S. dollars in the end of period at weighted-average rates for the period.
7) What can you learn from the Business Section of the 10-K? Give two facts learn from reading this section. It was really interesting to red about business performance of John Deere. I’ve learned from Business Section, John Deere performs in three different segments – agriculture and turf (well-known for all), construction and forestry (machine production for constructions), and financial services (primary, leases for dealers). Also, the Market Conditions and Outlook part was also good to read about. According to this part, the market in all three segment is going to be more competitive in next few years.
8) What can you learn from the Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A)? Give two facts learned from reading this section.
As I learned from reading this section, management considers sales decreasing as a core issue for the company. The market’s competition is increasing, so John Deere should develop new strategy to solve this problem and keep the same market share. The second fact is that management thinks that international presence of John Deere is less effective as it was few years ago due to increasing of foreign currency risk and shipment costs.
