Financial Statements and Cash Flow  Key Financial Statements  Balance Sheet  Income Statement  Statement of Stockholders’ Equity  Statement of Cash Flows  Free Cash Flow Chapter 3 3-1

The Annual Report  Verbal statement  Balance 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 stockholders’ equity – 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. 3-2

Balance Sheet  Assets = Liabilities + stockholders’ equity  Tot. Assets = Cur. Assets + Fixed Assets  Tot. Liab.=Cur. Liab. + LT Debt  Net Working Capital = Current assets – (Payables + Accruals) 3-3

Income Statement  Operating income (EBIT) = Sales revenues – operating costs  EPS = NI / common shares outstanding  DPS = Div. paid / common shares outstanding 3-4

Statement of cash flows  Operating Activities  Long term investing activities  Financing Activities 3-5

Statement of stockholders equity  Retained earnings represents a claim against assets  Retained earnings as reported on the balance sheet do not represent cash and are not available for dividends or anything else 3-6

The free cash flow (FCF) 3-7 Is negative free cash flow always a bad sign?  FCF is the amount of cash that could be withdrawn without harming a firm’s ability to operate and to produce future cash flows

End of Ch. Problems  (3-1) Pg. 76  (3-2) Pg. 76  (3-6) Pg. 76  (3-7) (a & b only) Pg