Chapter 3: Financial Statements, Cash Flow & Taxes

Annual Report

A report issued annually by a corporation to its stockholders. It contains basic financial statements as well as management's analysis of the firm's past operations and future prospects.

Verbal and financial statements

2 Sections of Annual Report

Balance Sheet

Shows what assets the company owns and who has claims on those assets as of a given date

Income Statement

shows the firm's sales and costs during some past period

Statement of Cashflow

shows how much cash the firm began the year with, how much cash it ended up with, and what it did to increase or decrease its cash.

statement of stockholders' equity

shows the amount of equity the stockholders had at the start of the year, the items that increased or decreased equity, and the equity at the end of the year.

Balance Sheet

A statement of a firm's financial position at a specific point in time.

Assets, Liabilities, common equity

3 main topics of Balance Sheet

Stockholders' equity

It represents the amount that stockholders paid the company when shares were purchased and the amount of earnings the company has retained since its origination.

retained earnings

They represent the cumulative total of all earnings kept by the company during its life.

Stockholders' Equity

=Paid-in Capital + Retained Earnings

Stockholders' Equity

=total assets - Total liablitlies

Current assets

Working Capital

net working capital

=Current assets - current liabilities.

net operating working capital (NOWC)

=Current assets - (Current Liabilities - Notes Payable)

Non-interest-bearing current liabilites

Total Debt

= Short Term Debt + Long Term Debt

Total Liabilities

= total debt + (Accounts payable + accruals)

income statements

Reports summarizing a firm's revenues, expenses, and profits during a reporting period, generally a quarter or a year.

Operating income

Earnings from operations before interest and taxes (i.e., EBIT).

EBIT

=Sales - Operating Costs

Earnings Per Share (EPS)

Dividends Per Share (DPS)

Book Value Per Share (BVPS)

Depreciation

The charge to reflect the cost of assets depleted in the production process.

***not a cash outlay

Amortization

A noncash charge similar to depreciation except that it represents a decline in value of intangible assets

EBITDA

Earnings before interest, taxes, depreciation, and amortization.

statement of cash flows

A report that shows how items that affect the balance sheet and income statement affect the firm's cash flows.

operating, investing, financing

3 different sections on statement of cash flows

statement of stockholders' equity

A statement that shows by how much a firm's equity changed during the year and why this change occurred.

Retained Earnings

________ ________ as reported on the balance sheet do not represent cash and are not "available" for dividends or anything else

free cash flow (FCF)

The amount of cash that could be withdrawn without harming a firm's ability to operate and to produce future cash flows.

free cash flow (FCF)

Dividends= Change in Net Operating Working Capital

Add back depreciation and amorization

net operating profit after taxes (NOPAT)

The profit a company would generate if it had no debt and held only operating assets.

market value added (MVA)

The excess of the market value of equity over its book value.

MVA

= Market Value - Book Value

Market Value = stock price outstanding shares

economic value added (EVA)

Excess of NOPAT over capital costs.

EVA

=NOPAT - Annual dollar cost of capital

Annual dollar cost of capital

= Total invested Capital * After Tax Percentage cost of capital