1. Business Finance
Michael Dimond

2. Understanding financial statements
Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Shareholders’ Equity

3. Income Statement – Target Corp

4. Balance Sheet – Target Corp

5. Statement of Cash Flows – Target Corp

6. Cash Inflows and Cash Outflows
How a business produces and consumes cash matters because it creates or destroys value which belongs to the owners of the business.
Consider the statement of cash flows (direct method):
Cash received from customers is an inflow (revenue minus Δ A/R)
:. On the indirect statement of cash flows, the Δ in A/R represents a use of cash
Cash disbursed for merchandise is an outflow (purchases minus Δ A/P)
:. On the indirect statement of cash flows, the Δ in A/P represents a source of cash

7. How our author computes cash flow
A = L E
Assets produce cash flows. Our author calls this “Cash Flow From Assets” (CFFA)
Liability holders receive cash flows. Our author calls this “Cash Flow To Creditors” (CF/CR)
The remaining cash flows are available to benefit owners. Our author calls this “Cash Flow To Stockholders” (CF/SH)

8. How our author computes cash flow
Cash Profits After Taxes:
EBIT + Depreciation – Total Taxes

9. How our author computes cash flow
Cash Flow From Assets (CFFA)
= EBIT + Depreciation – Total Taxes
– Net Capital Spending (NCS)
– Changes in NWC (ΔNWC)
= Cash Flow to Creditors (CF/CR)
+ Cash Flow to Stockholders (CF/SH)