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ACCOUNTING STATEMENTS
and CASH FLOW and
FINANCIAL PLANNING and
GROWTH
FINANCIAL STATEMENTS
BALANCE SHEET a snapshot of the
firms assets, liabilities and equities
Asset = Liabilities + Shareholders
equity (Owners equity)
Therefore, Owners Equity = Assets Liabilities
Balance Sheet
Assets
Current Assets
Cash
Marketable Securities
Accounts Receivable
Inventories
Prepaid Expenses
Fixed Assets
Machinery & Equipment
Buildings and Land
Other Assets
Investments &
patents
Accounts Payable
Accrued Expenses
Short-term notes
Long-Term Liabilities
Long-term notes
Mortgages
Equity
Preferred Stock
Common Stock (Par
value)
Paid in Capital
Retained Earnings
FINANCIAL STATEMENTS
Financial leverage: the use of debt in a
firms capital structure. The more debt
a firm has the greater its degree of
financial leverage.
Market value vs Book value: values
shown in balance sheet for firms assets
are book values (historical costs). For
financial managers, the market value of
the stock (shareholders equity) is more
important than the accounting value.
FINANCIAL STATEMENTS
INCOME STATEMENT a measure of the
firms performance over some period of
time.
Sales (Revenue or Turnover)
- Cost of goods sold
- Depreciation
= Earnings before interest and taxes (EBIT)
- Interest paid
= Taxable income (Profit before tax)
- Taxes
= Net profit (Net income or net earnings)
SALES
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses
Income
Statement
FINANCIAL STATEMENTS
STATEMENT OF RETAINED EARNINGS
reports how net income & dividends affect
a companys financial position during the
period
Example: In 2005 retained earnings for M Corp. is
$1,629.
Beginning balance, retained earnings, 2004
$1,320
+ Net Income
$412
- Dividends
$103
Ending balance, retained earnings, 2005
$1,629
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS
$1,014
684
$ 330
40
$63
Decrease
Asset
Use of fund
Source of fund
Liabilities
Source of fund
Use of fund
M Corporation
Balance Sheet
2004
2005
Assets
Current Assets
Cash
Accounts receivable
Inventory
104
455
553
160
688
555
233u
2u
Total
1,112
1,403
Fixed assets
Net plant & equipment
1,644
1,709
Total assets
2,756
3,112
232
196
266
123
34s
-73u
428
408
389
454
46s
65u
4-34
4-38
$350,000
$45,000
Projected depreciation
($35,000)
$360,000
Revenues
2000
Costs
1600
400
Equity 600
Total
4-39
1000 Total
2,300
Costs
1,840
Net Income
460
4-40
1,150 Debt
Equity
Total
1,150 Total
4-41
460
690
1,150
1,150 Total
4-42
1,060
1,150
Balance Sheet
4-43
% of
Sales
Sales
5,000
Costs
3,300
Costs
3,000
2,200
EBT
2,000
60% EBT
Taxes
40%
Net Income
16%
Taxes
(40%)
800
Net Income
1,200
Dividends
600
Add. To RE
600
4-44
24%
880
1,320
Dividends
660
Add. To RE
660
Current
% of
Sales
Pro
Forma
Current % of
Pro
Sales Forma
ASSETS
Current Assets
Current Liabilities
Cash
$500
10%
A/R
2,000
40
Inventory
3,000
5,500
Total
$550
$900 18%
$990
2,200 N/P
2,500
n/a
2,500
60
3,300
3,400
n/a
3,490
110
6,050 LT Debt
2,000
n/a
2,000
CS & APIC
2,000
n/a
2,000
RE
2,100
n/a
2,760
4,100
n/a
4,760
Fixed Assets
A/P
Total
Owners Equity
Net PP&E
4,000
80
4,400
Total Assets
9,500
190
10,450
Total
Total L & OE
4-45
9,500
10,250
4-46
4-47
% of
Sales
Pro
Forma
Current % of
Pro
Sales Forma
ASSETS
Current Assets
Current Liabilities
Cash
$500
10%
A/R
2,000
40
Inventory
3,000
5,500
Total
$550
$900 18%
$990
2,200 N/P
2,500
n/a
2,500
60
3,300
3,400
n/a
3,490
110
6,050 LT Debt
2,000
n/a
2,000
CS & APIC
2,000
n/a
2,000
RE
2,100
n/a
2,760
4,100
n/a
4,760
Fixed Assets
A/P
Total
Owners Equity
Net PP&E
4,000
80
4,000
Total Assets
9,500
190
10,050
Total
Total L & OE
4-48
9,500
10,250
b = retention ratio
1 - ROA b
.1263 .5
b = .5
4-50
1 .1263 .5
6.74%
.0674
1 - ROE b
.2927 .5
.1714
1 .2927 .5
17.14%
4-52
Determinants of Growth
Profit margin operating efficiency
Total asset turnover asset use
efficiency
Financial leverage choice of optimal
debt ratio
Dividend policy choice of how much
to pay to shareholders versus
reinvesting in the firm
4-53