Financial Statement The Balance Sheet The Income Statement
Financial Statement ÜThe Balance Sheet ÜThe Income Statement ÜThe Statement of Cash Flows ÜAccounting for Differences Fin 301 - Dr. Menahem Rosenberg 1
The Balance Sheet Definition Financial statements that show the value of the firm’s assets and liabilities at a particular point in time (from an accounting perspective). Fin 301 - Dr. Menahem Rosenberg 2
The Balance Sheet The Main Balance Sheet Items Current Liabilities Payables Accruals Short-term Debt Current Assets Cash & Securities Receivables Inventories = + Fixed Assets Tangible Assets Intangible Assets Fin 301 - Dr. Menahem Rosenberg + Long-term Liabilities + Shareholders’ Equity 3
Market Value vs. Book Values are determined by GAAP Market Values are determined by current values Equity and Asset “Market Values” are usually higher than their “Book Values” Fin 301 - Dr. Menahem Rosenberg 4
The Income Statement Definition Financial statement that shows the revenues, expenses, and net income of a firm over a period of time (from an accounting perspective). Fin 301 - Dr. Menahem Rosenberg 5
The Income Statement Earnings Before Income & Taxes (EBIT) EBIT = - total Revenues - costs - deprecation Fin 301 - Dr. Menahem Rosenberg 6
The Income Statement Timberland Co. Year End 12/31/2001 - in thousands Revenue 1, 183, 623 COGS 662, 848 SG&A 334, 490 EBIT 186, 285 Depreciation & Amortization Interest Expense 23, 192 1, 560 Other income EBT Average O/S shares 40, 247 196 161, 729 Tax Expense 54, 988 Net Income 106, 741 Fin 301 - Dr. Menahem Rosenberg 7
Profits vs. Cash Flows Differences Ü “Profits” subtract depreciation (a non-cash expense) Ü “Profits” ignore cash expenditures on new capital (the expense is capitalized) Ü “Profits” record income and expenses at the time of sales, not when the cash exchanges actually occur Ü “Profits” do not consider changes in working capital Fin 301 - Dr. Menahem Rosenberg 8
The Statement of Cash Flows Definition Financial statement that shows the firm’s cash receipts and cash payments over a period of time. Fin 301 - Dr. Menahem Rosenberg 9
The Statement of Cash Flows + Net Income + Non-cash expenses + Depreciation Changes in working capital - chg A/R +chg A/P -chg Inv = Cash Flow from Operations Cash from New Investments - purchases + sales Cash from Financing - repurchase of stock or debt + sales of stock or debt - dividend Net Change in Cash Position (from previous B/S to current) Fin 301 - Dr. Menahem Rosenberg 10
Accounting for Differences ÜSubjective aspects exist in reporting earnings and book value ÜSome liabilities may excluded from balance sheets (off balance sheet financing). ÜInternational accounting standards vary ÜShare outstanding in per share computations Fin 301 - Dr. Menahem Rosenberg 11
Leverage Ratios Fin 301 - Dr. Menahem Rosenberg 12
Liquidity Ratios Fin 301 - Dr. Menahem Rosenberg 13
Efficiency Ratios Fin 301 - Dr. Menahem Rosenberg 14
Profitability Ratios Fin 301 - Dr. Menahem Rosenberg 15
Market Value Ratios Fin 301 - Dr. Menahem Rosenberg 16
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