Chapter 2 Financial Statements Taxes and Cash Flow
![Chapter 2 Financial Statements, Taxes, and Cash Flow 2 -1 Mc. Graw-Hill/Irwin Copyright © Chapter 2 Financial Statements, Taxes, and Cash Flow 2 -1 Mc. Graw-Hill/Irwin Copyright ©](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-1.jpg)
![Chapter Outline • • 2 -2 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -2 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-2.jpg)
![Chapter Outline • • 2 -3 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -3 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-3.jpg)
![Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-4.jpg)
![Balance Sheet The most important relationship you can bring to this class (from your Balance Sheet The most important relationship you can bring to this class (from your](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-5.jpg)
![The Balance Sheet Figure 2. 1 2 -6 The Balance Sheet Figure 2. 1 2 -6](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-6.jpg)
![Net Working Capital NWC = Current Assets – Current Liabilities Positive when the cash Net Working Capital NWC = Current Assets – Current Liabilities Positive when the cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-7.jpg)
![Liquidity Ø Ability to convert to cash quickly without a significant loss in value Liquidity Ø Ability to convert to cash quickly without a significant loss in value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-8.jpg)
![US Corporation Balance Sheet – Table 2. 1 Place Table 2. 1 (US Corp US Corporation Balance Sheet – Table 2. 1 Place Table 2. 1 (US Corp](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-9.jpg)
![Book Versus Market Value 2 -10 Book Versus Market Value 2 -10](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-10.jpg)
![Market Value vs. Book Value The balance sheet provides the book value of the Market Value vs. Book Value The balance sheet provides the book value of the](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-11.jpg)
![Market Value vs. Book Value Classroom Discussion Questions 1. Market value and book value Market Value vs. Book Value Classroom Discussion Questions 1. Market value and book value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-12.jpg)
![Example 2. 2 Klingon Corporation KLINGON CORPORATION Balance Sheets Market Value versus Book Value Example 2. 2 Klingon Corporation KLINGON CORPORATION Balance Sheets Market Value versus Book Value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-13.jpg)
![Chapter Outline • • 2 -14 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -14 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-14.jpg)
![Income Statement The income statement is more like a video of the firm’s operations Income Statement The income statement is more like a video of the firm’s operations](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-15.jpg)
![US Corporation Income Statement – Table 2. 2 2 -16 US Corporation Income Statement – Table 2. 2 2 -16](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-16.jpg)
![Work the Web Example Publicly traded companies must file regular reports with the Securities Work the Web Example Publicly traded companies must file regular reports with the Securities](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-17.jpg)
![Chapter Outline • • 2 -18 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -18 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-18.jpg)
![Taxes Ø The one thing we can rely on with taxes is that they Taxes Ø The one thing we can rely on with taxes is that they](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-19.jpg)
![Corporate Progressive Taxes • Just like personal tax rates in the United States, corporations Corporate Progressive Taxes • Just like personal tax rates in the United States, corporations](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-20.jpg)
![Corporate Progressive Taxes • A significant difference between individual tax rates and corporate tax Corporate Progressive Taxes • A significant difference between individual tax rates and corporate tax](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-21.jpg)
![Corporate Progressive Taxes • Marginal Tax Rate: The tax rate you would pay if Corporate Progressive Taxes • Marginal Tax Rate: The tax rate you would pay if](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-22.jpg)
![Corporate Tax Rates 2 -23 Corporate Tax Rates 2 -23](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-23.jpg)
![Example: Marginal Vs. Average Rates Suppose your firm earns $4 million in taxable income. Example: Marginal Vs. Average Rates Suppose your firm earns $4 million in taxable income.](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-24.jpg)
![Corporate Tax Rates Each major industry has different tax incentives provided by the US Corporate Tax Rates Each major industry has different tax incentives provided by the US](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-25.jpg)
![Chapter Outline • • 2 -26 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -26 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-26.jpg)
![The Concept of Cash Flow Cash flow is one of the most important pieces The Concept of Cash Flow Cash flow is one of the most important pieces](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-27.jpg)
![Cash Flow Summary Table 2. 6 2 -28 Cash Flow Summary Table 2. 6 2 -28](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-28.jpg)
![Cash Flow From Assets (CFFA) = Cash Flow to Creditors + Cash Flow to Cash Flow From Assets (CFFA) = Cash Flow to Creditors + Cash Flow to](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-29.jpg)
![Example of CCFA: Part I CF to Creditors (B/S and I/S) = interest paid Example of CCFA: Part I CF to Creditors (B/S and I/S) = interest paid](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-30.jpg)
![Cash Flow From Assets = Operating Cash Flow – Net Capital Spending – Changes Cash Flow From Assets = Operating Cash Flow – Net Capital Spending – Changes](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-31.jpg)
![Example of CCFA: Part II �OCF (I/S) = EBIT + depreciation – taxes = Example of CCFA: Part II �OCF (I/S) = EBIT + depreciation – taxes =](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-32.jpg)
![The Big Picture Problem: Balance Sheet and Income Statement Information 2 -33 Current Accounts The Big Picture Problem: Balance Sheet and Income Statement Information 2 -33 Current Accounts](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-33.jpg)
![Task: use the information on the previous slide to compute the following: 1. OCF Task: use the information on the previous slide to compute the following: 1. OCF](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-34.jpg)
![Cash Flow Problem Answers: OCF = 1, 014 + 500 – 368 = 1, Cash Flow Problem Answers: OCF = 1, 014 + 500 – 368 = 1,](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-35.jpg)
![Quick Quiz What is the difference between book value and market value? Which should Quick Quiz What is the difference between book value and market value? Which should](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-36.jpg)
![Quick Quiz What is the difference between average and marginal tax rates? Which should Quick Quiz What is the difference between average and marginal tax rates? Which should](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-37.jpg)
![Comprehensive Problem Current Accounts 2009: CA = 4, 400; CL = 1, 500 2008: Comprehensive Problem Current Accounts 2009: CA = 4, 400; CL = 1, 500 2008:](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-38.jpg)
![Ethics Issues Why is manipulation of financial statements not only unethical and illegal, but Ethics Issues Why is manipulation of financial statements not only unethical and illegal, but](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-39.jpg)
![Terminology • • 2 -40 Book Value of a Company Market Value of a Terminology • • 2 -40 Book Value of a Company Market Value of a](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-40.jpg)
![Formulas Total Assets = Total Liabilities + Stockholders Equity CFFA = CF to creditors Formulas Total Assets = Total Liabilities + Stockholders Equity CFFA = CF to creditors](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-41.jpg)
![Key Concepts and Skills • Identify the difference between book value and market value Key Concepts and Skills • Identify the difference between book value and market value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-42.jpg)
![What are the most important topics of this chapter? 1. Know the difference between What are the most important topics of this chapter? 1. Know the difference between](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-43.jpg)
![Questions? 2 -44 Questions? 2 -44](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-44.jpg)
- Slides: 44
![Chapter 2 Financial Statements Taxes and Cash Flow 2 1 Mc GrawHillIrwin Copyright Chapter 2 Financial Statements, Taxes, and Cash Flow 2 -1 Mc. Graw-Hill/Irwin Copyright ©](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-1.jpg)
Chapter 2 Financial Statements, Taxes, and Cash Flow 2 -1 Mc. Graw-Hill/Irwin Copyright © 2013 by The Mc. Graw-Hill Companies, Inc. All rights reserved.
![Chapter Outline 2 2 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -2 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-2.jpg)
Chapter Outline • • 2 -2 The Balance Sheet The Income Statement Taxes Cash Flow
![Chapter Outline 2 3 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -3 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-3.jpg)
Chapter Outline • • 2 -3 The Balance Sheet The Income Statement Taxes Cash Flow
![Balance Sheet The balance sheet is a snapshot of the firms assets and liabilities Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-4.jpg)
Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities at a given point in time Assets are listed in order of decreasing liquidity Liquidity is the ease of conversion to cash without significant loss of value 2 -4
![Balance Sheet The most important relationship you can bring to this class from your Balance Sheet The most important relationship you can bring to this class (from your](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-5.jpg)
Balance Sheet The most important relationship you can bring to this class (from your accounting), is the formula of the “Balance Sheet Identity”: Total Assets = Total Liabilities + Stockholders Equity 2 -5
![The Balance Sheet Figure 2 1 2 6 The Balance Sheet Figure 2. 1 2 -6](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-6.jpg)
The Balance Sheet Figure 2. 1 2 -6
![Net Working Capital NWC Current Assets Current Liabilities Positive when the cash Net Working Capital NWC = Current Assets – Current Liabilities Positive when the cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-7.jpg)
Net Working Capital NWC = Current Assets – Current Liabilities Positive when the cash that will be received over the next 12 months exceeds the cash that will be paid out Usually positive in a financially healthy firm 2 -7
![Liquidity Ø Ability to convert to cash quickly without a significant loss in value Liquidity Ø Ability to convert to cash quickly without a significant loss in value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-8.jpg)
Liquidity Ø Ability to convert to cash quickly without a significant loss in value Ø Liquid firms are less likely to experience financial distress Ø But liquid assets typically earn a lower return Ø Trade-off to find balance between liquid and illiquid assets 2 -8
![US Corporation Balance Sheet Table 2 1 Place Table 2 1 US Corp US Corporation Balance Sheet – Table 2. 1 Place Table 2. 1 (US Corp](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-9.jpg)
US Corporation Balance Sheet – Table 2. 1 Place Table 2. 1 (US Corp Balance Sheet) here 2 -9
![Book Versus Market Value 2 10 Book Versus Market Value 2 -10](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-10.jpg)
Book Versus Market Value 2 -10
![Market Value vs Book Value The balance sheet provides the book value of the Market Value vs. Book Value The balance sheet provides the book value of the](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-11.jpg)
Market Value vs. Book Value The balance sheet provides the book value of the assets, liabilities, and equity. Market value is the price at which the assets, liabilities, or equity can actually be bought or sold. 2 -11
![Market Value vs Book Value Classroom Discussion Questions 1 Market value and book value Market Value vs. Book Value Classroom Discussion Questions 1. Market value and book value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-12.jpg)
Market Value vs. Book Value Classroom Discussion Questions 1. Market value and book value are often very different. Why? 2. Which is more important to the decision-making process? 2 -12
![Example 2 2 Klingon Corporation KLINGON CORPORATION Balance Sheets Market Value versus Book Value Example 2. 2 Klingon Corporation KLINGON CORPORATION Balance Sheets Market Value versus Book Value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-13.jpg)
Example 2. 2 Klingon Corporation KLINGON CORPORATION Balance Sheets Market Value versus Book Value Book Market Assets 2 -13 Book Market Liabilities and Shareholders’ Equity NWC $ 400 $ 600 LTD NFA 700 1, 000 SE 1, 100 1, 600 $ 500 600 1, 100 1, 600
![Chapter Outline 2 14 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -14 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-14.jpg)
Chapter Outline • • 2 -14 The Balance Sheet The Income Statement Taxes Cash Flow
![Income Statement The income statement is more like a video of the firms operations Income Statement The income statement is more like a video of the firm’s operations](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-15.jpg)
Income Statement The income statement is more like a video of the firm’s operations for a specified period of time. You generally report revenues first and then deduct any expenses for the period. Matching principle – GAAP says to show revenue when it accrues and match the expenses required to generate the revenue. 2 -15
![US Corporation Income Statement Table 2 2 2 16 US Corporation Income Statement – Table 2. 2 2 -16](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-16.jpg)
US Corporation Income Statement – Table 2. 2 2 -16
![Work the Web Example Publicly traded companies must file regular reports with the Securities Work the Web Example Publicly traded companies must file regular reports with the Securities](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-17.jpg)
Work the Web Example Publicly traded companies must file regular reports with the Securities and Exchange Commission These reports are usually filed electronically and can be searched at the SEC public site called EDGAR Click on the web surfer, pick a company, and see what you can find! 2 -17
![Chapter Outline 2 18 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -18 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-18.jpg)
Chapter Outline • • 2 -18 The Balance Sheet The Income Statement Taxes Cash Flow
![Taxes Ø The one thing we can rely on with taxes is that they Taxes Ø The one thing we can rely on with taxes is that they](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-19.jpg)
Taxes Ø The one thing we can rely on with taxes is that they are always changing! Ø Marginal vs. average tax rates Marginal tax rate – the percentage paid on the next dollar earned Ø Average tax rate – the tax bill / taxable income Ø Ø Other taxes Ø State Ø Local (City or Town) 2 -19
![Corporate Progressive Taxes Just like personal tax rates in the United States corporations Corporate Progressive Taxes • Just like personal tax rates in the United States, corporations](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-20.jpg)
Corporate Progressive Taxes • Just like personal tax rates in the United States, corporations pay taxes on their taxable earnings • A significant difference is that corporate tax rates fit into just 8 categories 2 -20
![Corporate Progressive Taxes A significant difference between individual tax rates and corporate tax Corporate Progressive Taxes • A significant difference between individual tax rates and corporate tax](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-21.jpg)
Corporate Progressive Taxes • A significant difference between individual tax rates and corporate tax rates is that there are only 8 categories: 2 -21
![Corporate Progressive Taxes Marginal Tax Rate The tax rate you would pay if Corporate Progressive Taxes • Marginal Tax Rate: The tax rate you would pay if](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-22.jpg)
Corporate Progressive Taxes • Marginal Tax Rate: The tax rate you would pay if you had one more taxable dollar • Average Tax Rate: The tax rate you are paying on all of your taxable income which averages across all of your corporate tax categories 2 -22
![Corporate Tax Rates 2 23 Corporate Tax Rates 2 -23](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-23.jpg)
Corporate Tax Rates 2 -23
![Example Marginal Vs Average Rates Suppose your firm earns 4 million in taxable income Example: Marginal Vs. Average Rates Suppose your firm earns $4 million in taxable income.](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-24.jpg)
Example: Marginal Vs. Average Rates Suppose your firm earns $4 million in taxable income. What is the firm’s tax liability? What is the average tax rate? What is the marginal tax rate? If you are considering a project that will increase the firm’s taxable income by $1 million, what tax rate should you use in your analysis? 2 -24
![Corporate Tax Rates Each major industry has different tax incentives provided by the US Corporate Tax Rates Each major industry has different tax incentives provided by the US](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-25.jpg)
Corporate Tax Rates Each major industry has different tax incentives provided by the US Government and as such, may actually pay a different average tax rate: 2 -25
![Chapter Outline 2 26 The Balance Sheet The Income Statement Taxes Cash Chapter Outline • • 2 -26 The Balance Sheet The Income Statement Taxes Cash](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-26.jpg)
Chapter Outline • • 2 -26 The Balance Sheet The Income Statement Taxes Cash Flow
![The Concept of Cash Flow Cash flow is one of the most important pieces The Concept of Cash Flow Cash flow is one of the most important pieces](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-27.jpg)
The Concept of Cash Flow Cash flow is one of the most important pieces of information that a financial manager can derive from financial statements The “Statement of Cash Flows” does not provide us with the same information that we are looking at here We will look at how cash is generated 2 -27 from utilizing assets and how it is paid to those that finance the purchase of the assets.
![Cash Flow Summary Table 2 6 2 28 Cash Flow Summary Table 2. 6 2 -28](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-28.jpg)
Cash Flow Summary Table 2. 6 2 -28
![Cash Flow From Assets CFFA Cash Flow to Creditors Cash Flow to Cash Flow From Assets (CFFA) = Cash Flow to Creditors + Cash Flow to](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-29.jpg)
Cash Flow From Assets (CFFA) = Cash Flow to Creditors + Cash Flow to Stockholders CFFA = CF to creditors + CF to Stockholders 2 -29
![Example of CCFA Part I CF to Creditors BS and IS interest paid Example of CCFA: Part I CF to Creditors (B/S and I/S) = interest paid](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-30.jpg)
Example of CCFA: Part I CF to Creditors (B/S and I/S) = interest paid – net new borrowing = $24 CF to Stockholders (B/S and I/S) = dividends paid – net new equity raised = $63 CFFA = CF to creditors + CF to Stockholders 2 -30 CFFA = 24 + 63 = $87
![Cash Flow From Assets Operating Cash Flow Net Capital Spending Changes Cash Flow From Assets = Operating Cash Flow – Net Capital Spending – Changes](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-31.jpg)
Cash Flow From Assets = Operating Cash Flow – Net Capital Spending – Changes in NWC CFFA = OCF – NCS - ∆NWC 2 -31
![Example of CCFA Part II OCF IS EBIT depreciation taxes Example of CCFA: Part II �OCF (I/S) = EBIT + depreciation – taxes =](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-32.jpg)
Example of CCFA: Part II �OCF (I/S) = EBIT + depreciation – taxes = $547 �NCS ( B/S and I/S) = ending net fixed assets – beginning net fixed assets + depreciation = $130 �Changes in NWC (B/S) = ending NWC – beginning NWC = $330 �CFFA = OCF – NCS - ∆NWC �CFFA = 547 – 130 – 330 = $87 2 -32
![The Big Picture Problem Balance Sheet and Income Statement Information 2 33 Current Accounts The Big Picture Problem: Balance Sheet and Income Statement Information 2 -33 Current Accounts](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-33.jpg)
The Big Picture Problem: Balance Sheet and Income Statement Information 2 -33 Current Accounts 2009: CA = 3625; CL = 1787 2008: CA = 3596; CL = 2140 Fixed Assets and Depreciation 2009: NFA = 2194; 2008: NFA = 2261 Depreciation Expense = 500 Long-term Debt and Equity 2009: LTD = 538; Common stock & APIC = 462 2008: LTD = 581; Common stock & APIC = 372 Income Statement EBIT = 1014; Taxes = 368 Interest Expense = 93; Dividends = 285
![Task use the information on the previous slide to compute the following 1 OCF Task: use the information on the previous slide to compute the following: 1. OCF](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-34.jpg)
Task: use the information on the previous slide to compute the following: 1. OCF 2. NCS 3. Changes in NWC 4. CFFA 5. CF to Creditors 6. CF to Stockholders 7. CFFA 8. Does the CF identity hold? 2 -34
![Cash Flow Problem Answers OCF 1 014 500 368 1 Cash Flow Problem Answers: OCF = 1, 014 + 500 – 368 = 1,](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-35.jpg)
Cash Flow Problem Answers: OCF = 1, 014 + 500 – 368 = 1, 146 NCS = 2, 194 – 2, 261 + 500 = 433 Changes in NWC = (3, 625 – 1, 787) – (3, 596 – 2, 140) = 382 CFFA = 1, 146 – 433 – 382 = 331 CF to Creditors = 93 – (538 – 581) = 136 CF to Stockholders = 285 – (462 – 372) = 195 CFFA = 136 + 195 = 331 The CF identity holds! 2 -35
![Quick Quiz What is the difference between book value and market value Which should Quick Quiz What is the difference between book value and market value? Which should](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-36.jpg)
Quick Quiz What is the difference between book value and market value? Which should we use for decision-making purposes? What is the difference between accounting income and cash flow? Which do we need to use when making decisions? 2 -36
![Quick Quiz What is the difference between average and marginal tax rates Which should Quick Quiz What is the difference between average and marginal tax rates? Which should](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-37.jpg)
Quick Quiz What is the difference between average and marginal tax rates? Which should we use when making financial decisions? How do we determine a firm’s cash flows? What are the equations, and where do we find the information? 2 -37
![Comprehensive Problem Current Accounts 2009 CA 4 400 CL 1 500 2008 Comprehensive Problem Current Accounts 2009: CA = 4, 400; CL = 1, 500 2008:](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-38.jpg)
Comprehensive Problem Current Accounts 2009: CA = 4, 400; CL = 1, 500 2008: CA = 3, 500; CL = 1, 200 Fixed Assets and Depreciation 2009: NFA = 3, 400; 2008: NFA = 3, 100 Depreciation Expense = 400 Long-term Debt and Equity (R. E. not given) 2009: LTD = 4, 000; Common stock & APIC = 400 2008: LTD = 3, 950; Common stock & APIC = 400 Income Statement EBIT = 2, 000; Taxes = 300 Interest Expense = 350; Dividends = 500 Task: Compute the CFFA 2 -38
![Ethics Issues Why is manipulation of financial statements not only unethical and illegal but Ethics Issues Why is manipulation of financial statements not only unethical and illegal, but](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-39.jpg)
Ethics Issues Why is manipulation of financial statements not only unethical and illegal, but also bad for stockholders? 2 -39
![Terminology 2 40 Book Value of a Company Market Value of a Terminology • • 2 -40 Book Value of a Company Market Value of a](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-40.jpg)
Terminology • • 2 -40 Book Value of a Company Market Value of a Company Net Working Capital (NWC) Liquidity Marginal Tax Rate Average Tax Rate Cash Flow from Assets (CFFA)
![Formulas Total Assets Total Liabilities Stockholders Equity CFFA CF to creditors Formulas Total Assets = Total Liabilities + Stockholders Equity CFFA = CF to creditors](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-41.jpg)
Formulas Total Assets = Total Liabilities + Stockholders Equity CFFA = CF to creditors + CF to Stockholders CFFA = OCF – NCS - ∆NWC 2 -41
![Key Concepts and Skills Identify the difference between book value and market value Key Concepts and Skills • Identify the difference between book value and market value](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-42.jpg)
Key Concepts and Skills • Identify the difference between book value and market value • Identify the difference between accounting income and cash flow • Differentiate between average and marginal tax rates • Calculate a firm’s cash flow from its financial statements 2 -42
![What are the most important topics of this chapter 1 Know the difference between What are the most important topics of this chapter? 1. Know the difference between](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-43.jpg)
What are the most important topics of this chapter? 1. Know the difference between book value and the market value of a company 2. Be able to compute the average and the marginal tax rates of a company 3. Be able to compute the firm’s cash flow from its financial statements 2 -43
![Questions 2 44 Questions? 2 -44](https://slidetodoc.com/presentation_image_h/a4acf62f626c4d7fdb4bd66f5c5424db/image-44.jpg)
Questions? 2 -44
Chapter 2 financial statements taxes and cash flow
Cash flow to creditors is equal to
Cash is current asset or not
Ipsas 2 cash flow statements
Financial statements and ratio analysis chapter 3
Financial statements and ratio analysis chapter 3
Chapter 2 income benefits and taxes
Chapter 14: taxes and government spending section 1
Foundations u.com
Chapter 23 understanding income and taxes
Chapter 14 taxes and government spending
Chapter 14 taxes and government spending
Cash in cash out example
Chapter 6 discounted cash flow valuation
The expense recognition principle aims to record
Financial statement of sole proprietorship
Chapter 7 financial statements for a proprietorship
Chapter 3 adjusting accounts for financial statements
Chapter 8 separate financial statements
Chapter 4 analysis of financial statements
Chapter 4 analysis of financial statements
Working with financial statements chapter 3
Chapter 3 adjusting accounts for financial statements
The time period assumption states that
Chapter 16 accounting for income taxes
Chapter 19 intermediate accounting
State and local taxes and spending
Cash to cash cycle time
Cash to cash cycle time
Raw materials budget example
Paid cash to establish a petty cash fund
List six reasons why a bank may dishonor a check.
Corporate financial policy and the value of cash
What are the big three of cash management
10-4 cash flow and budgeting answers
Cash flow and cost control
Cash flow estimation and risk analysis
How to calculate cash flow from profit and loss statement
Unit 13 accounting and financial statements
Financial analysis for banks
Consolidated financial statements and outside ownership
Payroll accounting entries
Interest tax shield
Residual cash flow
Cash flow to stockholders formula