4. Financial Statement, Cash Flows and Taxes

8/14/2019 4. Financial Statement, Cash Flows and Taxes

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FINANCIAL STEMENTS,

CASH FLOWS, AND TAXES


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FINANCIAL STATEMENTS

History of Accounting and FinancialStatements

Journal and Ledger

Trial BalanceBalance Sheet

Profit and Loss Account

Statement of Retained EarningsNotes to the Accounts

CEO Report


3/22

BALANCE SHEET

Definition?(YOU do not actually know it if you can not define it)


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840

1680

896

2000

Total Common Equity

Total Liabilities & Equity16802000Total Assets

710766Retained earnings

130130Common Stock

4040Preferred Stock

8001064Total debts

8701000

Net Plant & Equivalents

580754Long Term Bonds

8101000

Total Current

Assets

220310Total Current Liabilities415615Inventories

130140Accruals315375Accounts Receivables

60110Notes Payable

650

Short TermInvestments

$30$60Accounts Payable$15$10Cash & Equivalent

19971998Liabilities and Equity19971998Assets

Micro Drive Inc.

Balance Sheet

December 31, 1998


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THE BALANCE SHEET(Order Of Liquidity)

Assetso Receivableso Inventorieso Plant and Equipment

Liabilitieso Accounts Payableo Notes Payableo Accruals

o Long term Financingo Preferred Stocko Common Stock


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7/22

The Income Statement

Definition?


8/22


9/22

$1.06

$16.80

$1.15

$17.92

Dividends Per Share (DPS)

Book Value Per Share

(BVPS)

$2.36$2.27Earning Per Share (EPS)

$26$23Common Stock Price

19971998

PER- SHARE DATA


10/22

Calculation of Certain Concepts

EPS = Net Income/(Common Stock Outstanding)= $113,500,000/50,000,000 = $2.27 per share

DPS = Dividends Paid to Common Stock Holders

Common Stock Outstanding

= $57,500,000/ 50,000,000

= $1.15 per share

BVPS = Total Common Equity

Common Shares Out Standing

= $896000000/50,000,000

= $17.92 per share


11/22

Statement of Retained EarningsDefinition?


12/22

Micro Drive Inc.Statement of Retained Earning

For the Period ending on December 31, 1998

$766.00Balance of Retained earnings, December,1998

($57.50)Less: Dividends to Common stockholders

$113.50Add: net Income, 1998

$710.00Balance of Retained Earning, December 31,1997


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STATEMENT OF CASH FLOWDefinition?

Net Cash Flow = Net Income Non cash revenues+ NonCash charges

However practically it is :

Net Cash Flow = Net Income + Depreciation and

Amortization


14/22

Remember

Effects of:

Net Income Non Cash Adjustments to Net Income Changes to Working Capital

Fixed Assets Security Transactions

Hence cash Flow is affected by three activities: Operating Activities Investing Activities Financing Activities

Micro Drive Inc


15/22

Micro Drive Inc.Statement of Cash Flow

For the Period ending on December 31, 1998

($ 2.500)Net Cash Provided by Operating Activities

$ 10.00Increase in Accruals

$ 30.00Increase in Accounts Payable

($ 200.00)Increase in Inventories

($ 60.00)Increase in Accounts Receivables

Due to Changes in Working Capital

$ 100.00 Depreciation

Non Cash Adjustments:

Adjustments

$ 117.50Net Income

Operating Activity

Cash Provided


16/22

$ 10.00Cash at the end of Year

$ 15.00Cash at the Beginning of Year

($ 5.00)Net Change in Cash{($ 2.50) + ($ 230.00) + $ 227.50) }

SUMMARY

227.50Net Cash Flow Provided by Financing Activities

($ 61.50)Payments of Dividends

$ 174.00Increase in Bond Outstanding

$ 50.00Increase in Notes Payable

$ 65.00Sale of Short Term Investments

(230)Investing Activities(Cash used acquire fixed assets)

Financing Activities


17/22

Cash provided by Operations

Net Income

Non Cash Expenses Depreciation

Deferred Income Taxes

Deferred Income Taxes

Other, Including amortization

Changes in working capitalDecrease (Increase) in inventories

Decrease (Increase) in accounts receivables

Decrease (Increase) in other current assets

Decrease (Increase) in accounts payables

Decrease (Increase) in other current liabilities

Cash provided by Operations


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Cash Provided (used) by InventoriesAdditions to property, plant and equipment

Additions to other noncurrent assets

Cash provided (used) by investmentsCash provided (used) by financing

Additions (reductions) to debt

Dividend

OtherCash provided (used) by financing

Net increase in cash and marketable securities


19/22

MODIFYING ACCOUNTING DATA FORMANAGERIAL DECISIONS

Operating Assets & Non Operating Assets

(Cash, A/R, Inv. necessary to operate businessand like marketable Securities, investment insubsidiaries, land held for future)

Working Capital & Plant and Equipment Operating Working Capital & Net OperatingWorking Capital

Net Operating Working Capital =

(All Current assets that do not pay Interest) (All Current Liabilities that do not ChargeInterest)


20/22

In 1998 in the case of Micro Drive Inc. theNOWC is:

= ( Cash + A/ R + Inventories) (A/P +Accruals)

= (10+375+615) (60 + 140) = $ 800.00

Total Operating Capital =NOWC+FA

= $ 800 + $ 1000

= $ 1800.00


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Net Operating Profit After Taxes ( NOPAT) The amount of profit a company would generate if it had

no debt and held no financialassets(?).

NOPAT = EBIT (1- Tax Rate)= 283.81(1-0.40) = $ 170.30

Free Cash Flow (FCF)

The cash flow actually available for distribution to investors after thecompany has made all the investment in fixed assets and workingcapital necessary to sustain ongoing operations

Operating Cash Flow = NOPAT + Depreciation= 170.3 + 100 = 270.30

Also:Gross Investment( GI) = Net Investment +Depreciation=

345 +100=445FCF = Operating Cash Flow - GI = 270.3 445= - 174.7

FCF = NOPAT Net Investment inOperating Capital

= 170.5 345 = - 174.7


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Taxation System

Indirect Taxationo Customs Duties

o Sales Tax

o Central Excise

Direct Taxation(Income Tax)

o Progressiveo Taxable Income

o Marginal Tax rate

o Average Tax Rate

o Bracket Creepo Tax on Dividend (Double Taxation?)

o Difference in Taxation of Persons

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4. Financial Statement, Cash Flows and Taxes

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