Chapter 3
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Chapter 3 Understanding Financial Statements and Cash Flows Income Statement Cost of Goods Sold Operating Expenses (marketing, administrative) Financing Costs SALES - EXPENSES = PROFIT Income Statement Cost of Goods Sold Operating Expenses (marketing, administrative)

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Income statement l.jpg
Income Statement

  • Cost of Goods Sold

  • Operating Expenses

  • (marketing, administrative)

  • Financing Costs

SALES

- EXPENSES

= PROFIT


Income statement4 l.jpg
Income Statement

  • Cost of Goods Sold

  • Operating Expenses

  • (marketing, administrative)

  • Financing Costs

  • Taxes

SALES

- EXPENSES

= PROFIT


Assemble an income statement l.jpg
Assemble an Income Statement

  • Oper. Income (EBIT)

  • Sales

  • Interest

  • Earnings before taxes (EBT)

  • Gross Profit

  • Net Income

  • Net income available to Common Stockholders

  • COGS

  • Preferred Stock Dividends

  • Operating Expenses

  • Income Taxes


Income statement6 l.jpg
Income Statement

SALES

- Cost of Goods Sold

GROSS PROFIT

- Operating Expenses

OPERATING INCOME (EBIT)

- Interest Expense

EARNINGS BEFORE TAXES (EBT)

- Income Taxes

NET INCOME

- Preferred Stock Dividends

- NET INCOME AVAILABLE

TO COMMON STOCKHOLDERS


Income statement7 l.jpg

Operating

Activities

Income Statement

SALES

- Cost of Goods Sold

GROSS PROFIT

- Operating Expenses

OPERATING INCOME(EBIT)

- Interest Expense

EARNINGS BEFORE TAXES (EBT)

- Income Taxes

NET INCOME

- Preferred Stock Dividends

- NET INCOME AVAILABLE

TO COMMON STOCKHOLDERS


Income statement8 l.jpg
Income Statement

SALES

- Cost of Goods Sold

GROSS PROFIT

- Operating Expenses

OPERATING INCOME (EBIT)

- Interest Expense

EARNINGS BEFORE TAXES (EBT)

- Income Taxes

NET INCOME

- Preferred Stock Dividends

- NET INCOME AVAILABLE

TO COMMON STOCKHOLDERS

Financing

Activities


Balance sheet l.jpg
Balance Sheet

Outstanding

Debt

+

Shareholders’

Equity

Total Assets =


Balance sheet10 l.jpg
Balance Sheet

Assets

Liabilities (Debt) & Equity


Assemble a balance sheet l.jpg
Assemble a Balance Sheet

  • Machinery Marketable Securities

  • Notes Payable S.T. Accounts Receivable

  • Retained Earnings Accounts Payable

  • Accrued Expenses Bldgs & Land

  • Common stock (par Patents (intangibles)

  • Prepaid Expenses Long Term Notes

  • Inventories Cash

  • Mortgages Paid in Capital

  • Preferred Stock Investments


Balance sheet12 l.jpg
Balance Sheet

Assets

Liabilities (Debt) & Equity

Current Liabilities

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

Current Assets

Cash

Marketable Securities

Accounts Receivable

Inventories

Prepaid Expenses

Fixed Assets

Machinery & Equipment

Buildings and Land

Other Assets

Investments & patents


Statement of cash flows l.jpg
Statement of Cash Flows:

Even if a company reports a large net income during a year, the amount of cash reported on its year-end balance sheet may be the same or even lower than its beginning cash.

To solve for the reasons why cash has changed you look at the Income Statement for the period and the change in the balance sheet over that same year.


Calculating the cash flow stmt l.jpg
Calculating the Cash Flow Stmt

  • Shows the actual cash flows generated by the firm for the year broken down into three areas.

    THREE AREAS

    • Cash Flow from Operations

    • Cash Flow from Investments (acquired or sold)

    • Cash Flow from Financing receipts or payments