chapter 3 financial statements and cash flows
DESCRIPTION
CHAPTER 3 Financial Statements and Cash Flows . Income statement Balance sheet Statement of cash flows Free Cash Flow (FCF). Income Statement. Measure of profitability over a period of time. 2012. 2011. Sales. $6,034,000. $3,432,000. COGS. 5,528,000. 2,864,000. Other expenses. - PowerPoint PPT PresentationTRANSCRIPT
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CHAPTER 3 Financial Statements and Cash Flows
Income statement Balance sheet Statement of cash flows Free Cash Flow (FCF)
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Income Statement Measure of profitability over a period of
timeSimplified Income Statement:
Sales(Total revenue)-Cost of Goods Sold(Cost of revenue)
Gross Profit-Expense
Earning Before Interest and Tax(EBIT,Operating income)-Interest
Earning Before Tax (EBT)-Tax
Net Income (NI)
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Income Statement
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2012 2011 Sales $6,034,000 $3,432,000 COGS 5,528,000 2,864,000
Other expenses 519,988 358,672 Total oper.costs excl.
deprec. & amort. $6,047,988
$3,222,672
Depreciation and amortization 116,960 18,900 EBIT ($ 130,948) $ 190,428
Interest expense 136,012 43,828 EBT ($ 266,960) $ 146,600 Taxes (106,784) 58,640 Net income ($ 160,176) $ 87,960
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Balance Sheet Balance sheet provides a snap
shot of the firm’s financial condition at one point in time
Assets=Liability+Equity What you have = Where it comes
from
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Balance Sheet: Assets
CashA/RInventories
Total CAGross FALess: Dep.
Net FATotal Assets
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20127,282
632,1601,287,3601,926,8021,202,950 263,160 939,7902,866,592
201157,600
351,200 715,2001,124,000
491,000 146,200 344,8001,468,800
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Balance Sheet: Liabilities and Equity
Accts payableNotes payableAccruals
Total CLLong-term debtCommon stockRetained earnings
Total EquityTotal L & E
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2012524,160
636,808 489,6001,650,568
723,432460,000
32,592 492,5922,866,592
2011145,600200,000
136,000481,600323,432460,000
203,768 663,7681,468,800
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Statement of Stockholders’ Equity (2012)
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Total Common Stock Retained Stockholders’ Shares Amount Earnings Equity
Balances, 12/31/01 100,000 $460,000 $203,768 $663,768 2012 Net income (160,176) Cash dividends (11,000) Addition (subtraction)
to retained earnings (171,176) Balances, 12/31/12 100,000 $460,000 $ 32,592 $492,592
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Statement of cash flows A report that shows how cash is
obtained and used. Why need it? Cash income and net
income can be very different Depreciation Revenue recognition
Cash are affected by three activities Operating Investing Financing
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Statement of Cash Flows (2012)
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Operating Activities Net income ($160,176) Depreciation and amortization 116,960 Increase in accounts payable 378,560 Increase in accruals 353,600 Increase in accounts receivable (280,960) Increase in inventories (572,160) Net cash provided by operating activities ($164,176)
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Statement of Cash Flows (2012)
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Long-Term Investing Activities Additions to property, plant, & equipment ($ 711,950) Net cash used in investing activities ($ 711,950) Financing Activities Increase in notes payable $ 436,808 Increase in long-term debt 400,000 Payment of cash dividends (11,000) Net cash provided by financing activities $ 825,808 Summary Net decrease in cash ($ 50,318) Cash at beginning of year 57,600 Cash at end of year $ 7,282
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Free Cash flows FCF:The amount of cash that could
be withdrawn from a firm without harming its ability to operate and expand.
FCF=EBIT(1-t)+Dep.-[CapEx+increase in net operating working capital] FCF=[EBIT(1-t)]-increase in Net Fixed
Assets-increase in net operating working capital
FCF=[EBIT(1-t)]-[CapEx-Dep.]-[increase in net operating working capital]
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Net Working Capital
Working Capital: Current assetsWe are interested to know capital (funds, money)
supplied by investors (share holders and debt holders)NOWC = Current - Non-interest assets bearing CLNOWC=(cash and marketable
security+AR+Inventories)-(AP+AC)Change in NOWC =NOWC1-NOWC0Change is NOWC is how much more money investors
need to put into the working capital of the company.
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What effect did the expansion have on net working capital?
NOWC = Current assets – (Payables + Accruals)NOWC12 = ($7,282 + $632,160 + $1,287,360) – ($524,160 + $489,600)
= $913,042NOWC11 = $842,400∆NOWC= NOWC12 –NOWC11 = $913,042- $842,400=$70,642
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Capital Expenditure Capital expenditure: Fund spent to
acquire fixed assets Cap Exp =(NetFA1-NetFA0)+Dep1 (NetFA1=NetFA0+ Cap Exp -Dep1) Cap Exp2012= ($939,790 –
$344,800)+116,960=$711,950
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What was the free cash flow (FCF) for 2012?
NOWC
esexpenditurCapital
onamortizati
and Depr. T)EBIT(1 FCF
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FCF12 = [-$130,948(1 – 0.4) + $116,960] – [711,950+ $70,642]= -$744,201