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CHAPTER 3 Financial Statements and Cash Flows

CHAPTER 3 Financial Statements and Cash Flows . Income statement Balance sheet Statement of cash flows Free Cash Flow (FCF). Income Statement. Measure of profitability over a period of time. 2012. 2011. Sales. $6,034,000. $3,432,000. COGS. 5,528,000. 2,864,000. Other expenses.

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CHAPTER 3 Financial Statements and Cash Flows

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  1. CHAPTER 3 Financial Statements and Cash Flows Income statement Balance sheet Statement of cash flows Free Cash Flow (FCF)

  2. Income Statement • Measure of profitability over a period of time

  3. 2012 2011 Sales $6,034,000 $3,432,000 COGS 5,528,000 2,864,000 Other expenses 519,988 358,672 Total oper.costs excl. deprec. & amort. $ 6,047,988 $3,222,672 Deprec iation and amort ization 116,960 18,900 EBIT ( $ 1 30,948) $ 190,428 Interest expense 136,012 43,828 EBT ($ 266,960) $ 146,600 Taxes (106,784 ) 58,640 Net income ( $ 160,176 ) $ 87,960 Income Statement

  4. Balance Sheet • Balance sheet provides a snap shot of the firm’s financial condition at one point in time • Assets=Liability+Equity • What you have = Where it comes from

  5. 2012 7,282 632,160 1,287,360 1,926,802 1,202,950 263,160 939,790 2,866,592 2011 57,600 351,200 715,200 1,124,000 491,000 146,200 344,800 1,468,800 Balance Sheet: Assets Cash A/R Inventories Total CA Gross FA Less: Dep. Net FA Total Assets

  6. 2012 524,160 636,808 489,600 1,650,568 723,432 460,000 32,592 492,592 2,866,592 2011 145,600 200,000 136,000 481,600 323,432 460,000 203,768 663,768 1,468,800 Balance Sheet: Liabilities and Equity Accts payable Notes payable Accruals Total CL Long-term debt Common stock Retained earnings Total Equity Total L & E

  7. Total Common Stock Retained Stockholders’ Shares Amount Earnings Equity Balances, 12/31/01 100,000 $460,000 $203,768 $663,768 2012 Net income (160,176 ) Cash dividends (11,000) Addition (subtraction) to retained earnings (171,176 ) Balances, 12/31/12 100,000 $460,000 $ 32,592 $492,592 Statement of Stockholders’ Equity (2012)

  8. Statement of cash flows • A report that shows how cash is obtained and used. • Why need it? Cash income and net income can be very different • Depreciation • Revenue recognition • Cash are affected by three activities • Operating • Investing • Financing

  9. Statement of Cash Flows (2012)

  10. Statement of Cash Flows (2012)

  11. Free Cash flows • FCF:The amount of cash that could be withdrawn from a firm without harming its ability to operate and expand. FCF=EBIT(1-t)+Dep.-[CapEx+increase in net working capital] • FCF=[EBIT(1-t)]-increase in Net Fixed Assets-increase in net working capital • FCF=[EBIT(1-t)]-[CapEx-Dep.]-[increase in net working capital]

  12. Net Working Capital Working Capital: Current assets We are interested to know capital (funds, money) supplied by investors (share holders and debt holders) NWC = Current - Non-interest assets bearing CL NWC=(cash and marketable security+AR+Inventories)-(AP+AC) Change in NWC =NWC1-NWC0 Change is NWC is how much more money investors need to put into the working capital of the company.

  13. What effect did the expansion have on net working capital? NWC = Current assets – (Payables + Accruals) NWC12 = ($7,282 + $632,160 + $1,287,360) – ($524,160 + $489,600) = $913,042 NWC11 = $842,400 ∆NWC= NWC12 –NWC11 = $913,042- $842,400=$70,642

  14. Capital Expenditure • Capital expenditure: Fund spent to acquire fixed assets • Cap Exp =(NetFA1-NetFA0)+Dep1 • Cap Exp2012= ($939,790 – $344,800)+116,960=$711,950

  15. FCF12 = [-$130,948(1 – 0.4) + $116,960] – [711,950+ $70,642] = -$744,201 What was the free cash flow (FCF) for 2008?

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