slide 1 understanding financial statements, taxes, and cash flows income statement balance sheet...
TRANSCRIPT
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Slide 1
Understanding Financial Statements, Taxes, and Cash Flows
Income Statement Balance Sheet Taxes Free Cash Flow (FCF)
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Slide 2
Income Statement
SALES
– EXPENSES
= PROFIT
•Cost of Goods Sold•Operating Expenses (marketing, administrative)•Financing Costs•Taxes
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Slide 3
Income Statement (Continued)SALES
– Cost of Goods Sold= GROSS PROFIT
– Operating Expenses = OPERATING INCOME (EBIT)
– Interest Expense= EARNINGS BEFORE TAXES (EBT)
– Income Taxes= EARNINGS AFTER TAXES (EAT)
– Preferred Stock Dividends= NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
Operating Activities
Financing Activities
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Slide 4
Balance SheetTotal Assets = Outstanding Debt + Shareholders’ Equity
Assets Liabilities and Shareholders’ Equity
Current Assets
Cash
Marketable Securities
Accounts Receivable
Inventories
Prepaid Expenses
Fixed Assets
Machinery & Equipment
Buildings and Land
Other Assets
Investments & patents
Current Liabilities
Accounts Payable Accrued Expenses Short-term notesLong-Term Liabilities Long-term notes MortgagesEquity Preferred Stock Common Stock (Par value) Paid in Capital Retained Earnings
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Slide 5
Assets Current Assets: assets that are relatively liquid,
and are expected to be converted to cash within a year Cash, marketable securities, accounts receivable,
inventories, prepaid expenses. Fixed Assets: machinery and equipment,
buildings, and land Other Assets: any asset that is not a current asset
or fixed asset Intangible assets such as patents and copyrights
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Slide 6
Financing Debt Capital: financing provided by a creditor Short-Term Debt: borrowed money that must be
repaid within the next 12 months Accounts payable, other payables such as interest or
taxes payable, accrued expenses, short-term notes Long-Term Debt: loans from banks or other
sources that lend money for longer than 12 months
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Slide 7
Financing (Continued) Equity Capital: shareholders’ investment in the
firm Preferred Stockholders: receive fixed dividends,
and have higher priority than common stockholders in event of liquidation of the firm
Common Stockholders: residual owners of a business. They receive whatever is left after creditors and preferred stockholders are paid
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Slide 8
Corporate Tax Rates
Taxable Income Corporate Tax Rate$1 - $50,000 15%$50,001 - $75,000 25%$75,001 - $100,000 34%$100,001 - $335,000 39%$335,001 - $10,000,000 34%$10,000,001 - $15,000,000 35%$15,000,001 - $18,333,333 38%over $18,333,333 35%
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Slide 9
Free Cash Flow (FCF) Free Cash Flow: cash flow that is free and available to be
distributed to the firm’s investors (both debt and equity investors)
Firm’s Operating Free Cash Flow should be equal to Firm’s Financing Free Cash Flow
Operating Free Cash Flow: Cash flows generated through the firm’s operations and investments in assets
Financing Free Cash Flow: Cash flows paid to – or received by – the firm’s investors (creditors & stockholders)
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Slide 10
Operating Free Cash Flow Operating Cash Flow (OCF) = EBIT + Depreciation – Taxes Change in NWC (ΔNWC) = Ending NWC – Beginning NWC
NWC = Net Working Capital = Current Assets – Current Liabilities Note that the Current Liabilities exclude interest bearing Current Liabilities
Net Capital Spending (NCS) = Ending NFA – Beginning NFA + Depreciation
NFA = Net Fixed Assets Note that if you are given gross value of Fixed Assets (FA) then the Net
Capital Spending is the difference between Ending FA and Beginning FA
Operating Free Cash Flow (OFCF) = OCF – ΔNWC – NCS
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Slide 11
Financing Free Cash Flow Cash Flow to Creditors (CFC) = Interest Paid – Net New
Borrowing Net New Borrowing = (Ending LTD + Ending Interest Bearing Current
Liabilities) – (Beginning LTD + Beginning Interest Bearing Current Liabilities)
LTD = Long-Term Debt
Cash Flow to Shareholders (CFS) = Dividend Paid – Net New Equity
Net New Equity = Ending Common Stock – Beginning Common Stock Common Stock excludes Retained Earnings Addition to Retained Earnings = Net Income – Dividends Paid
Financing Free Cash Flow (FFCF) = Cash Flow to Creditors + Cash Flow to Shareholders