Financial statements have limitations; they show only measurable activities of a corporation such as its quantifiable resources, its liabilities (money owed by it), amount of taxes facing it, and so forth. For example, financial statements exclude:
Internally developed trademarks and patents (think of Coke, Microsoft, General Electric)—the value of these brands cannot be quantified or recorded.
Employee and customer loyalty—their value is undeterminable.
Since financial statements show only measurable activities of a company, they must be reported in the national monetary unit: U.S. financial statements are reported in U.S. dollars (Exhibit 2.2); European financial statements now use the euro as a standard monetary unit.
CONSOLIDATED STATEMENT OF INCOME | ||||||
Note Reference Number | 2005 | 2004 | 2003 | |||
(millions of dollars) | ||||||
Revenues and other income | ||||||
Sales and other operating revenue(1) (2) | $ 358,955 | $ 291,252 | $ 237,054 | |||
Income from equity affiliates | 6 | 7,583 | 4,961 | 4,373 | ||
Other income | 4,142 | 1,822 | 5,311 | |||
Total revenues and other income | $ 370,680 | $ 298,035 | $ 246,738 | |||
Costs and other deductions | ||||||
Crude oil and product purchases | $ 185,219 | $ 139,224 | $ 107,658 | |||
Production and manufacturing expenses | 26,819 | 23,225 | 21,260 | |||
Selling, general and administrative expenses | 14,402 | 13,849 | 13,396 | |||
Depreciation and depletion | 10,253 | 9,767 | 9,047 | |||
Exploration expenses, including dry holes | 964 | 1,098 | 1,010 | |||
Interest expense | 496 | 638 | 207 | |||
Excise taxes(1) | 17 | 30,742 | 27,263 | 23,855 | ||
Other taxes and duties | 17 | 41,554 | 40,954 | 37,645 | ||
Income applicable to minority and preferred interests | 799 | 776 | 694 | |||
Total costs and other deductions | $ 311,248 | $ 256,794 | $ 214,772 | |||
Income before income taxes | $ 59,432 | $ 41,241 | $ 31,966 | |||
Income taxes | 17 | 23,302 | 15,911 | 11,006 | ||
Income from continuing operations | $ 36,130 | $ 25,330 | $ 20,960 | |||
Cumulative effect of accounting change, net of income tax | — | — | 550 | |||
Net income | $ 36,130 | $ 25,330 | $ 21,510 | |||
Net income per common share (dollars) | 10 |
Source: Used with permission. Microsoft 2005 Annual Report.