ch 2 financial statements, cash flow, and taxes (2)

8/2/2019 Ch 2 Financial Statements, Cash Flow, And Taxes (2)

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4/11/2012 1

FINANCIAL STATEMENTS,

CASH FLOW, AND TAXES

[email protected]


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Financial Statements and Reports

The Need of Financial Statements andReports

The Different between Financial Statements

and Financial ReportingFinancial Statements consist of:

The Balance Sheet

The Income StatementThe Statement of Retained Earnings

The Statement of Cash Flows


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The Balance Sheet

Assets = Liabilities + Equity

Cash versus other assets

Liabilities versus stockholders equity

Preferred versus common stock

Breakdown of the common equity accounts

Inventory accounting

Depreciation methods

The time dimension


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Balance Sheet: Assets

Cash 7,282 57,600

AR 632,160 351,200Inventories 1,287,360 715,200

Total CA 1,926,802 1,124,000Gross FA 1,202,950 491,000Less: Deprec. 263,160 146,200

Net FA 939,790 344,800Total Assets 2,866,592 1,468,800

2007 2006


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Liabilities and Equity

2007 2006Accts payable 524,160 145,600Notes payable 720,000 200,000Accruals 489,600 136,000

Total CL 1,733,760 481,600Long-term debt 1,000,000 323,432

Common stock 460,000 460,000Retained earnings (327,168) 203,768

Total equity 132,832 663,768Total L&E 2,866,592 1,468,800


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The Income Statement

Revenue

Expense Vs Cost

Depreciation; Amortization; DepletionEBITDA

EBIT

Net Income


7/284/11/2012 7

Income Statement

Sales 5,834,400 3,432,000COGS 5,728,000 2,864,000

Other expenses 680,000 340,000EBITDA (573,600) 228,000

Depr. & Amort. 116,960 18,900EBIT (690,560) 209,100

Interest exp. 176,000 62,500EBT (866,560) 146,600

Taxes (40%) (346,624) 58,640Net income (519,936) 87,960

2007 2006


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Other Data

No. of shares 100,000 100,000EPS ($5.199) $0.88

DPS $0.110 $0.22

Stock price $2.25 $8.50

2007 2006


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Statement of Retained Earnings &

Statement of Cash Flow

Statement of Retained Earning Claim against assets

Not represent cash available for payment dividend and other else

Net Cash Flow Vs. Accounting Profit Net cash flow = NINoncash revenue + Noncash charges

Net cash flow = NI + Depreciation and Amortization

Statement of Cash Flow

Operating Activities Investing Activities

Financing Activities


10/284/11/2012 10

Statement of Retained Earnings (2007)

Balance of retained

earnings, 12/31/2007 $203,768Add: Net income, 2000 (519,936)

Less: Dividends paid (11,000)

Balance of retainedearnings, 12/31/2007 ($327,168)


11/284/11/2012 11

Statement of Cash Flows (2007)

(523,936)

OPERATING ACTIVITIESNet income (519,936)

Add (Sources of cash):

Depreciation 116,960Increase in A/P 378,560Increase in accruals 353,600

Subtract (Uses of cash):

Increase in A/R (280,960)Increase in inventories (572,160)

Net cash provided by ops.


12/284/11/2012 12

L-T INVESTING ACTIVITIES

Investment in fixed assets (711,950)FINANCING ACTIVITIES

Increase in notes payable 520,000

Increase in long-term debt 676,568Payment of cash dividends (11,000)Net cash from financing 1,185,568

NET CHANGE IN CASH (50,318)Plus: Cash at beginning of year 57,600Cash at end of year 7,282


13/284/11/2012 13

Net cash from operations = -$523,936, mainly

because of negative NI.

The firm borrowed $1,185,568 to meet its cash

requirements.

Even after borrowing, the cash account fell by

$50,318.

What can you conclude aboutDLeons financial condition from its

statement of CFs?


14/284/11/2012 14

Accounting Data for Managerial Decisions

Operating Assets and Operating Capital Operating Assets; Nonoperating Assets

Operating Working Capital; Net Operating Working Capital

Net Operating Profit After Taxes (NOPAT)

= EBIT (1Tax rate)

Net Operating Working Capital (NOWC) =

Current AssetNon-interest bearing Current liabilities Free Cash Flow

= NOPAT - Net Investment in operating capital Market Value Added (MWA)

= Market Value of stockEquity capital supplied by stockholders

Economic Value Added (EVA)

= NOPAT(Operating capital)(After-tax percentage cost of capital)


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Did the expansion create additionalnet operating profit after taxes

(NOPAT)?

NOPAT = EBIT(1Tax rate)

NOPAT07 = -$690,560(10.4)

= -$690,560(0.6)

= -$414,336.

NOPAT06 = $125,460.


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What effect did the expansion have on

net operating working capital(NOWC)?

NOWC = Current

assets

Non-interest

bearing CL

NOWC07 = ($7,282 + $632,160 + $1,287,360)

($524,160 + $489,600)

= $913,042.

NOWC06 = $842,400.


17/284/11/2012 17

What effect did the expansion have on

capital used in operations?

Operatingcapital

= NOWC + Net fixed assets.

= $913,042 + $939,790

= $1,852,832.

= $1,187,200.

Operatingcapital07

Operatingcapital06


18/284/11/2012 18

What is your initial assessment of the

expansions effect on operations?

2007 2006

Sales $5,834,400 $3,432,000NOPAT ($414,336) $125,460

NOWC $913,042 $842,400

Operating capital $1,852,832 $1,187,200Net Income ($519,936) $87,960


19/284/11/2012 19

What effect did the companysexpansion have on its net cash flow

and operating cash flow?

NCF07 = NI + DEP = ($519,936) + $116,960

= ($402,976).NCF06 = $87,960 + $18,900 = $106,860.

OCF07 = NOPAT + DEP= ($414,336) + $116,960= ($297,376).

OCF06 = $125,460 + $18,900= $144,360.


20/284/11/2012 20

What was the free cash flow (FCF)

for 2002

FCF = NOPATNet capital investment

= -$414,336($1,852,832$1,187,200)

= -$414,336$665,632

= -$1,079,968.

Is negative free cash flow always a bad

sign?


21/284/11/2012 21

Economic Value Added (EVA)

EVA =

=

= NOPAT After-Tax Cost

of Capital Used

Operating IncomeAfter Tax

After-Tax Costof Capital Used

Funds Availableto Investors

Cost ofCapital Used


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In order to generate positive EVA, a firm

has to more than just cover operating costs.It must also provide a return to those whohave provided the firm with capital.

EVA takes into account the total cost of

capital, which includes the cost of equity.

EVA Concepts


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What is the companys EVA?

Assume the firms after-tax cost ofcapital was 11% in 2006and 13% in 2007.

EVA07 = NOPAT (A-T cost of capital)(Capital)= -$414,336 (0.13)($1,852,832)= -$414,336 $240,868= -$655,204.

EVA06= $125,460 (0.11)($1,187,200)= $125,460 $130,592= -$5,132.


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Would you conclude thatthe expansion increased or

decreased MVA?

MVA = Market valueof equity Equity capitalsupplied

During the last year stock price has

decreased 73%, so market value ofequity has declined. Consequently,MVA has declined.


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Income Tax System Individual Tax System

UU No. 17 Tahun 2000Pajak Penghasilan

Tarif Pajak atas Wajib Pajak Orang Pribadi

Lapisan Penghasilan Kena Pajak Tarif Pajak

s/d Rp25.000.000 5%Di atas Rp25.000.000 s/d Rp50.000.000 10%

Di atas Rp50.000.000 s/d Rp100.000.000 15%

Di atas Rp100.000.000 s/d Rp200.000.000 25%

Di atas Rp200.000.000 35%

Tarif Pajak atas Wajib Pajak Badan dalam Negeri dan BUT

s/d Rp50.000.000 10 %

Di atas Rp50.000.000 s/d Rp100.000.000 15%

Di atas Rp100.000.000 30%


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Calculation of Taxable Income

200 juta

55,184 juta

(5,184 juta)

Salary net

Other income

PTKP, istri + 3 anak

Taxable Income 250 juta


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4/11/2012 27

Tax Payable:

5% x Rp 25 juta = Rp 1,250 juta

10% x Rp 25 juta = 2,500 juta15% x Rp 50 juta = 7,500 juta

25% x Rp 100 juta = 25,000 juta

35% x Rp 55 juta = 17,500 jutaRp53,750 juta

Calculation of Taxable Income


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Income Tax System

Taxable Income

= Gross incomeexemptions and allowablededuction

Marginal Tax Rate

tax rate applicable to the last unit of a persons income Average Tax Rate

= tax paid : taxable income

Bracket Creep

a situation occurs when progressive tax rates combinewith inflation to cause a greater portion of each taxpayersreal income to be paid as taxes

ch 2 financial statements, cash flow, and taxes (2)

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