Download presentation
Presentation is loading. Please wait.
Published byTracy Lawrence Modified over 9 years ago
1
Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows 2005, Pearson Prentice Hall
2
SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Income Statement
3
SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Income Statement Revenue
4
Income Statement SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Cost of Goods Sold
5
Income Statement SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Cost of Goods Sold Operating Expenses
6
Income Statement SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Cost of Goods Sold Operating Expenses (marketing, administrative)
7
Income Statement SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Cost of Goods Sold Operating Expenses (marketing, administrative) Financing Costs
8
Income Statement SALES SALES - EXPENSES - EXPENSES = PROFIT = PROFIT Cost of Goods Sold Operating Expenses (marketing, administrative) Financing Costs Taxes
9
SALES SALES - Cost of Goods Sold GROSS PROFIT GROSS PROFIT - Operating Expenses OPERATING INCOME (EBIT) OPERATING INCOME (EBIT) - Interest Expense EARNINGS BEFORE TAXES (EBT) EARNINGS BEFORE TAXES (EBT) - Income Taxes EARNINGS AFTER TAXES (EAT) EARNINGS AFTER TAXES (EAT) - Preferred Stock Dividends - NET INCOME AVAILABLE TO COMMON STOCKHOLDERS TO COMMON STOCKHOLDERS Income Statement
10
SALES SALES - Cost of Goods Sold GROSS PROFIT GROSS PROFIT - Operating Expenses OPERATING INCOME (EBIT) OPERATING INCOME (EBIT) - Interest Expense EARNINGS BEFORE TAXES (EBT) EARNINGS BEFORE TAXES (EBT) - Income Taxes EARNINGS AFTER TAXES (EAT) EARNINGS AFTER TAXES (EAT) - Preferred Stock Dividends - NET INCOME AVAILABLE TO COMMON STOCKHOLDERS TO COMMON STOCKHOLDERS Income Statement
11
SALES SALES - Cost of Goods Sold GROSS PROFIT GROSS PROFIT - Operating Expenses OPERATING INCOME (EBIT) OPERATING INCOME (EBIT) - Interest Expense EARNINGS BEFORE TAXES (EBT) EARNINGS BEFORE TAXES (EBT) - Income Taxes EARNINGS AFTER TAXES (EAT) EARNINGS AFTER TAXES (EAT) - Preferred Stock Dividends - NET INCOME AVAILABLE TO COMMON STOCKHOLDERS TO COMMON STOCKHOLDERS Income Statement
12
Balance Sheet Total Assets = Total Assets = Outstanding Debt + Shareholders’ Equity
13
Balance Sheet
14
Assets
15
Balance Sheet Assets Liabilities (Debt) & Equity
16
Balance Sheet Assets Liabilities (Debt) & Equity Current Assets Current Assets Cash Cash Marketable Securities Marketable Securities Accounts Receivable Accounts Receivable Inventories Inventories Prepaid Expenses Fixed Assets Machinery & Equipment Machinery & Equipment Buildings and Land Buildings and Land Other Assets Investments & patents Current Liabilities Accounts Payable Accounts Payable Accrued Expenses Accrued Expenses Short-term notes Short-term notes Long-Term Liabilities Long-term notes Long-term notes Mortgages MortgagesEquity Preferred Stock Preferred Stock Common Stock (Par value) Common Stock (Par value) Paid in Capital Paid in Capital Retained Earnings Retained Earnings
17
Assets Current Assets:
18
Assets Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year.
19
Assets Cash, marketable securities, accounts receivable, inventories, prepaid expenses.
20
Assets Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year. Cash, marketable securities, accounts receivable, inventories, prepaid expenses. Fixed Assets:
21
Assets Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year. Cash, marketable securities, accounts receivable, inventories, prepaid expenses. Fixed Assets: machinery and equipment, buildings, and equipment, buildings, and land. and land.
22
Assets Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year. Cash, marketable securities, accounts receivable, inventories, prepaid expenses. Fixed Assets: machinery and equipment, buildings, and land. Other Assets:
23
Assets Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year. Cash, marketable securities, accounts receivable, inventories, prepaid expenses. Fixed Assets: machinery and equipment, buildings, and land. Other Assets: any asset that is not a current asset or fixed asset.
24
Assets Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year. Cash, marketable securities, accounts receivable, inventories, prepaid expenses. Fixed Assets: machinery and equipment, buildings, and land. Other Assets: any asset that is not a current asset or fixed asset. Intangible assets, such as patents and copyrights.
25
Financing Debt Capital:
26
Financing Debt Capital: financing provided by a creditor.
27
Financing Short-term debt:
28
Financing Debt Capital: financing provided by a creditor. Short-term debt: borrowed money that must be repaid within the next 12 months.
29
Financing Debt Capital: financing provided by a creditor. Short-term debt: borrowed money that must be repaid within the next 12 months. Accounts payable, other payables such as interest or taxes payable, accrued expenses, short-term notes.
30
Financing Debt Capital: financing provided by a creditor. Short-term debt: borrowed money that must be repaid within the next 12 months. Accounts payable, other payables such as interest or taxes payable, accrued expenses, short-term notes. Long-term debt:
31
Financing Debt Capital: financing provided by a creditor. Short-term debt: borrowed money that must be repaid within the next 12 months. Accounts payable, other payables such as interest or taxes payable, accrued expenses, short-term notes. Long-term debt: loans from banks or other sources that lend money for longer than 12 months.
32
Financing Equity Capital:
33
Financing Equity Capital: shareholders’ investment in the firm.
34
Financing Preferred Stockholders:
35
Financing Equity Capital: shareholders’ investment in the firm. Preferred Stockholders: receive fixed dividends, and have higher priority than common stockholders in event of liquidation of the firm.
36
Financing Equity Capital: shareholders’ investment in the firm. Preferred Stockholders: receive fixed dividends, and have higher priority than common stockholders in event of liquidation of the firm. Common Stockholders:
37
Financing Equity Capital: shareholders’ investment in the firm. Preferred Stockholders: receive fixed dividends, and have higher priority than common stockholders in event of liquidation of the firm. Common Stockholders: residual owners of a business. They receive whatever is left after creditors and preferred stockholders are paid.
38
Corporate Income Tax Rates Since 1993 Taxable Income Corporate Tax Rate $1 - $50,000 15% $50,001 - $75,000 25% $75,001 - $100,000 34% $100,001 - $335,000 39% $335,001 - $10,000,000 34% $10,000,001 - $15,000,000 35% $15,000,001 - $18,333,333 38% over $18,333,333 35%
39
Free Cash Flows Free cash flow: cash flow that is free and available to be distributed to the firm’s investors (both debt and equity investors).
40
Free Cash Flows Cash Flows from Assets = Cash Flows from Financing Cash flows generated through the firm’s assets = Cash flows paid to - or received from - the firm’s investors (creditors & stockholders)
41
Calculating Free Cash Flows: An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets
42
Calculating Free Cash Flows: An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets Operating income + depreciation - cash tax payments
43
Calculating Free Cash Flows: An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets [Change in current assets] - [change in non-interest bearing current liabilities]
44
Calculating Free Cash Flows: An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets Change in gross fixed assets, and any other assets that are on the balance sheet.
45
Calculating Free Cash Flows: A Financing Perspective Interest payments to creditors - change in debt principal - change in debt principal - dividends paid to stockholders - dividends paid to stockholders - change in stock - change in stock = Financing Free Cash Flows
46
Tax Example:
47
Space Cow Computer has sales of $32 million, cost of goods sold at 60% of sales, cash operating expenses of $2.4 million, and $1.4 million in depreciation expense. The firm has $12 million in 9.5% bonds outstanding. The firm will pay $500,000 in dividends to its common stock holders. Calculate the firm’s tax liability.
48
Sales $32,000,000 Cost of Goods Sold (19,200,000) Operating Expenses (2,400,000) Depreciation Expense (1,400,000) EBIT or NOI 9,000,000 Interest Expense (1,140,000) Taxable Income 7,860,000
49
Income tax rate tax payment Income tax rate tax payment $50,000 x.15 = $ 7,500 $50,000 x.15 = $ 7,500 $25,000 x.25 = 6,250 $25,000 x.25 = 6,250 $25,000 x.34 = 8,500 $25,000 x.34 = 8,500 $235,000 x.39 = 91,650 $235,000 x.39 = 91,650 $7,525,000 x.34 = 2,558,500 $7,525,000 x.34 = 2,558,500 Total Tax payment $2,672,400 short cut: $7,860,000 x.34 = $2,672,400
Similar presentations
© 2024 SlidePlayer.com Inc.
All rights reserved.