Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Understanding
Financial
Statements and
Cash Flows
Learning Objectives
3-2
Slide Contents
Principles used in this Chapter
1.
2.
3.
4.
3-3
Principles Applied
in this Chapter
Principle 1:
Cash flow is what matters
Principle 5:
Conflicts of interest cause agency problems
3-4
3-5
Operating Expenses
Expenses related to marketing and distributing the product or
service and administering the business
Financing Costs
The interest paid to creditors
Tax Expenses
Amount of taxes owed, based upon taxable income
3-6
Figure 3-1
3-7
3-8
Table 3-1
3-9
Common-size
Income Statement
Common-size income statement restates the
income statement items as a percentage of
sales.
Common-size income statement makes it
easier to compare trends over time and
across firms in the industry.
3-10
Table 3-2
3-11
3-12
3-13
Figure 3-3
3-14
3-15
3-16
3-17
Long-Term Debt
Borrowings from banks and other sources for more than 1
year
3-18
3-19
Balance Sheet: A = L + E
ASSETS (A)
Current Assets
Fixed Assets
Total Assets
LIABILITIES (L)
Current Liabilities
Long-Term Liabilities
Total Liabilities
OWNERS EQUITY (E)
Preferred Stock
Common Stock
Retained earnings
3-20
Table 3-3
3-21
3-22
Debt Ratio
Debt ratio is the percentage of assets that
are financed by debt.
Debt ratio is an indication of financial risk.
Generally, higher the ratio, the more risky
the firm is, as firms have to pay interest on
debt regardless of the earnings or cash
flow situation.
3-23
3-24
3-25
Figure 3-6
How to measure a firms cash flows
3-26
3-27
Three sources of
cash flows (cont.)
If we know the cash flows from
operations, investments and financing,
we can understand the firms cash flow
position better, that is, how cash was
generated and how it was used.
3-28
3-29
Figure 3-7
3-30
Table 3-5
3-31
Taxable Income
Gross income less tax deductible expenses, plus interest
income received and dividend income received
Tax Deductible Expenses
Include Operating expenses (marketing, depreciation,
administrative expenses) and interest expense
Dividends paid are not deductible
3-32
Table 3-6
Computing Taxable Income ($000s)
3-33
Table 3-7
3-34
Figure 3-2
3-35
3-36
Figure 3-4
3-37
Table 3-4
3-38
Key terms
Accounts Payable
Accounts Receivable
Accrual basis accounting
Accrued expenses
Accumulated depreciation
Additional paid-in-capital
Balance sheet
Cash
Common size financial
statements
Common stock
Cost of goods sold
Current assets
Debt
Debt ratio
Depreciation expenses
EBIT
Earnings before taxes
Earnings per share
Equity
Financing cash flows
Financing cost
Fixed assets
Free cash flows
Gross fixed assets
3-39
Gross Profit
Gross profit margin
Income statement
Inventories
Long-term debt
Mortgage
Net fixed assets
Net income
Net profit margin
Net working capital
Operating expenses
Operating income
Operating profit margin
Operating working capital
Par value
Preferred stockholders
Profit margins
Retained earnings
Short-term liabilities
Short-term notes (debt)
Taxable income
Trade credit
Treasury stock
3-40