Financial Reporting on the Internet (Ametek, Inc.)

Financial Reporting on the Internet (AMETEK, Inc.)

The company's management as AMETEK observes in its 2012 annual report is responsible for not only the preparation but also the integrity of the financial statements and other related information (AMETEK, Inc., 2012).

As the company further points out in its annual report, its financial statements conform to the provisions of GAAP (AMETEK, Inc., 2012). The relevance of following the standard set of accounting policies cannot be overstated. To begin with, these standards come in handy in the enhancement of uniformity. As Warren and Reeve (2006) observe, this uniformity helps various stakeholders including but not limited to investors to compare one company against another. Confusion would most likely result were individual companies to prepare financial statements in different formats. It is also important to note that GAAP help in the standardization as well as regulation of accounting methods, assumptions, and definitions. For this reason, these standards play a very meaningful role in the reduction of the risk of error and fraud in the preparation of financial statements.

Q.3

Table 1: Comparison of Figures

2012 ($)

2011 ($)

Change ($)

2011 ($)

2010 ($)

Change ($)

Revenue

3,334,213

2,989,914

344,299

2,989,914

2,470,952

518,962

Operating Income

745,872

635,941

109,931

635,941

482,158

153,783

Net Income

459,132

384,464

74,668

384,464

238,932

145,532

All dollar figures are in thousands.

Based on the figures above, AMETEK seems to be expanding. This is more so the case given the impressive growth it registered in net income, revenue, and operating income within the three years under consideration. The positive net income figures for the years 2012, 2011, and 2010 also clearly indicate that AMETEK is a profitable company. Given that the revenue figure has been on an upward trend within the three years under consideration, one could conclude that the three-year trend of revenues has essentially been favorable.

Q.4

Table 2: Accounting Equation

2012 ($)

2011 ($)

Total Assets

5,190,056

4,319,490

Total Liabilities

2,654,905

2,266,685

Total Shareholder's Equity

2,535,151

2,052,805

All dollar figures are in thousands.

As per the accounting equation, Warren and Reeve (2006, p.12), observe that:

Assets = Liabilities + Owner's Equity

From the above table, the summation of the total shareholder's equity and total liabilities gives us the total assets figure. This is the case for both years. For that reason, one could conclude that the accounting equation holds true for AMETEK. It should also be noted that AMETEK's balance sheet has been presented in a classified format. This is particularly the case given that the company divides both its assets and liabilities into distinct categories, in an attempt to ensure that the information presented is easily read. Under assets, we have current assets and long-term assets. On the other hand, under liabilities, we have current liabilities and long-term liabilities.

Q.5

Property, plant and equipment comprise of all those assets of a business entity that have physical existence, i.e. machinery, buildings, and vehicles. They are critical when it comes to the enhancement of the efficient operation of a business. These assets cannot be easily liquidated. AMETEK's figures for property, plant and equipment for the years 2012 and 2011 are given as $383,483,000 and $325,329,000 respectively.

Q.6

AMETEK makes use of accrual-base accounting. Under this approach, "revenues are recorded at the point of sale and costs when they are incurred, not necessarily when a firm receives or pays out cash" (Graham and Smart, 2011, p.G-I). During the financial years 2012, 2011, and 2010, the cash provided by operations was $612,464,000, $508,565,000, and $423,013,000 respectively. I derived this information from AMETEK's consolidated statement of cash flows.

Q.7

Some of the accounts that provide evidence that AMETEK makes use of accrual accounting include:

Accounts receivables -- For sales made on credit at a certain date, revenue is realized during that period. In this case, the accounts receivables account is debited while revenue account is credited with the value of the said credit sales.

Cash (and cash equivalents) -- When payment for credit sales is received, the company debits cash account and credits the accounts receivables account with the amount received.

Accounts Payable -- For purchases made on credit, the transaction is recorded immediately the company becomes obligated to pay for the said goods, i.e. not necessarily when cash changes hands. In this case, the company credits accounts payables and debits the specific merchandise account.

Long-Term Debt -- With regard to the payment of the resulting interest expense, it is important to note that the said expense should be recognized in the accounting period in which it was incurred. The interest expense account is in this case debited whereas the credit entry goes to the interest payable account.

Q.8

a) Additions to property, plant and equipment

Dr the specific asset account(s) with $57,427,000

Cr Cash with $57,427,000

b) Dividends paid to shareholders

On Declaration:

Dr Dividends with $53,083,000

Cr Dividends Payable with $53,083,000

On Payment:

Dr Dividends Payable with $53,083,000

Cr Cash with $53,083,000

Q.9

Table 3: AMETEK's Current Ratio

Formula

2012 ($)

Ratio

2011 ($)

Ratio

Current Ratio

Current Assets / Current Liabilities

1,164,743/

879,969

1.32

1,059,119 / 628,875

1.68