Presentation on theme: "Financial Statements, Cash Flow, and Taxes"— Presentation transcript:
1 Financial Statements, Cash Flow, and Taxes CHAPTER 2Financial Statements, Cash Flow, and Taxes
2 The Annual ReportBalance sheet – provides a snapshot of a firm’s financial position at one point in time.Income statement – summarizes a firm’s revenues and expenses over a given period of time.Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends.Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.
3 The Balance Sheet Cash Versus Other Assets Inventory & Depreciation AccountingLiabilitiesBreakdown of the common equity accountPreferred versus common stock
4 Balance Sheet: Assets Cash A/R Inventories Total CA Gross FA Less: Dep.Net FATotal Assets20027,282632,1601,287,3601,926,8021,202,950263,160939,7902,866,592200157,600351,200715,2001,124,000491,000146,200344,8001,468,800
5 Balance sheet: Liabilities and Equity Accounts payableNotes payableAccrualsTotal CLLong-term debtCommon stockRetained earningsTotal EquityTotal L & E2002524,160636,808489,6001,650,568723,432460,00032,592492,5922,866,5922001145,600200,000136,000481,600323,432203,768663,7681,468,800
6 Income statement Sales COGS Other expenses EBITDA Depr. & Amort. EBIT Interest Exp.EBTTaxesNet income20026,034,0005,528,000519,988(13,988)116,960(130,948)136,012(266,960)(106,784)(160,176)20013,432,0002,864,000358,672209,32818,900190,42843,828146,60058,64087,960
7 Other data No. of shares EPS DPS Stock price Book Value Per Share Cash Flow Per Share2002100,000-$1.602$0.11$2.25$4.93-$0.432001$0.88$0.22$8.50$6.64$1.07
8 Statement of Retained Earnings (2002) $203,768(160,176)(11,000)$32,592Balance of retainedearnings, 12/31/01Add: Net income, 2002Less: Dividends paidearnings, 12/31/02
9 Statement of Cash Flows (2002) OPERATING ACTIVITIESNet incomeAdd (Sources of cash):DepreciationIncrease in A/PIncrease in accrualsSubtract (Uses of cash):Increase in A/RIncrease in inventoriesNet cash provided by ops.(160,176)116,960378,560353,600(280,960)(572,160)(164,176)
10 Statement of Cash Flows (2002) (711,950)436,808400,000(11,000)825,808(50,318)57,6007,282L-T INVESTING ACTIVITIESInvestment in fixed assetsFINANCING ACTIVITIESIncrease in notes payableIncrease in long-term debtPayment of cash dividendNet cash from financingNET CHANGE IN CASHPlus: Cash at beginning of yearCash at end of year
11 What can we conclude about the financial condition from the statement of CFs? Net cash from operations = -$164,176, mainly because of negative NI.The firm borrowed $825,808 to meet its cash requirements.Even after borrowing, the cash account fell by $50,318.
12 What about net operating profit after taxes (NOPAT)? NOPAT = EBIT (1 – Tax rate)NOPAT02 = -$130,948(1 – 0.4)= -$130,948(0.6)= -$78,569NOPAT01 = ?
13 What was the effect on net operating working capital? NOWC = Current Non-interestassets bearing CLNOWC02 = ($7,282 + $632,160 + $1,287,360) – ( $524,160+$636,808 + $489,600)= $276,234NOWC01 = ?
14 What was the change in Net Cash Flow? NCF02 = NI + Depreciation and Amortization= ($160,176) + $116,960= -$43,216NCF01 = ?
15 Does the company pay its suppliers on time? Probably not.A/P increased 260%, over the past year, while sales increased by only 76%.If this continues, suppliers may cut off the company’s trade credit.
16 How did the company finance its operation? The company financed its operation with external capital.It issued long-term debt
18 Tax treatment of various uses and sources of funds Interest paid – tax deductible for corporations (paid out of pre-tax income), but usually not for individuals (interest on home loans being the exception).Interest earned – usually fully taxable (an exception being interest from a (muni”).Dividends paid – paid out of after-tax income.Dividends received – taxed as ordinary income for individuals (“double taxation”).
19 More tax issuesTax Loss Carry-Back and Carry-Forward – since corporate incomes can fluctuate widely, the tax code allows firms to carry losses back to offset profits in previous years or forward to offset profits in the future.