Chapter 3 Financial Statements Updated 2-2015

Basic Financial Statements Income statement Balance sheet Cash flow statement 1.

Income Statement Table 1 2013 2013

Table 2 2012 and 2013 2012 2013 2012 2013

Cash Flow Statement Cash Flow Statement is used by firms to explain changes in their cash balances over a period of time by identifying all of the sources and uses of cash. Source of cash is any activity that brings cash into firm. Ex. sale of equipment Use of cash is any activity that causes cash to leave firm. Ex. purchase of equipment Note: Ending cash balance for 2012 = Beginning cash balance for 2013 2013 2013 2012

Table 3 2012 and 2013 2012 2013 2012 2013

Cash Flow Analysis Why did cash balance decline by $4.5 M. from 2012 to 2013? Accounts receivable increased by $22.5 M. representing an increase in uncollected cash from credit sales. Use of cash to invest in account receivables Inventory increased by $148.50 M. Use of cash to buy inventory 3. Equipment increased by $175.50 M. Use of cash to buy equipment Summary: An increase in an asset account = Use of cash A decrease in an asset account = Source of cash

Cash Flow Analysis (cont.) 4. Accounts Payable (credit extended to firm by suppliers) increased by $4.5 M. Source of cash provided by suppliers when firm buys inventory 5. Long-term debt increased by $51.75 M. Source of cash from long term financing 6. Short-term debt decreased by $9 M. Use of cash to pay off debt 7. Retained earnings increased by $159.75 M. Source of cash to firm from its operations Summary: An increase in a liability or an owner’s equity account = Source of cash A decrease in a liability or an owner’s equity account = Use of cash

Cash Flow Analysis Summary Uses of Cash Sources of Cash Increase in an asset account Decrease in an asset account Decrease in a liability account Increase in a liability account Decrease in an owners’ equity account Increase in an owner’s equity account

Cash Flow Statement The format for cash flow statement: Beginning Cash Balance Plus: Cash Flow from Operating Activities Plus: Cash Flow from Investing Activities Plus: Cash Flow from Financing Activities Equals: Ending Cash Balance

Cash Flow Statement (cont.) Operating activities represent company’s core business including sales & expenses. Basically any activity that affects net income for that period. Investing activities include cash flows that arise out of the purchase & sale of long-term assets (i.e. plant & equipment). Financing activities represent changes in firm’s use of debt & equity (i.e. issue of new shares, bonds) and payment of dividends.

Table 4 2013 2012 2013 Decrease 2013

Personal Summary Write down one thing you learned in this chapter that is interesting, new, or useful to you. ____________________________________________________________________________________________________________________________________________