An Overview of Financial Accounting
In early 2010, after the Christmas season, stock market analysts following Apple, Inc.—manufacturer of the popular iPhone, iPod, and Macintosh computer—were very optimistic about the company's future revenues and earnings. Based largely on bullish expectations concerning the recently upgraded smart phones and a new tablet computer rumored to be released later in 2010, analysts elevated Apple's earnings forecast from $7.66 to $7.81 per share, boosting the share price to $213.35, a whopping 27 times earnings.
What are revenues and earnings? How do they relate to stock prices? What role do analysts and their expectations play? Would an investment in Apple be a wise move? Answering such questions begins with an understanding of the business environment, investment decisions and financial statements—topics addressed in Part 1 of this textbook.