Financial Statements and Ratios: Balance Sheet, Income Statement, Cash Flows

Owners equity

Assets + liabilities

Current assets

Life < 1 year (inventory, cash, A/R)

Fixed assets

Life > 1 year (PPE, trademarks)

Current liabilities

Life < 1 year (A/P, accrued interest, payroll)

Long-term liabilities

Life > 1 year

Equity

Ownership: retained earnings, stock

Shareholders

Owners

Net Working Capital

Current assets - current liabilities

+ NWC

Cash received over next 12 months > cash paid out

- NWC

Cash received over next 12 months < cash paid out

Liquidity

Turn asset into cash quickly at reasonable market value

Debt equity ratio

Total liabilities / total equity

High D/E ratio

Lots of financial leverage

Low D/E ratio

More financially sound

Earnings per share (EPS)

Net income / # shares outstanding

Cash flows

Cash in less cash out

Cash flow identity

CF from assets = CF to creditors + CF to shareholders

CFFA

OCF - NCS - ∆NWC

Operating CF (OCF)

EBIT + depreciation - taxes

Net capital spending (NCS)

End net fixed assets - beg net fixed assets + depreciation

Change in NWC (∆NWC)

Ending NWC - beginning NWC

CF to creditors

Interest paid - Net new borrowing

CF to shareholders

Dividends - net new equity

Identify check

CFFA = CF to Creditors + CF to shareholders