Ch 3 Financial Statements, C.F., and Tax

annual report

10-k

mandatory by federal gov.

shows future outlook of company and past period performance

includes: income statement, balance sheet, statement of cash flows

income statement

profit/lose statement (sale-exp = net income)

rev (sales) from products/services

COGS - costs of products/services

operating exp: expenses related to marketing + distribution

financing costs = interest paid to creditors

tax expense = amount a owned, based on taxable income

balance sheet

firm’s financial position at 1 point in time

Balance Sheet assets

current assets = relatively liquid, or expected to be converted into cash within 12 months (cash, inventory, prepaid expenses)

long term assets = assets that will not be converted into cash within 12 months

• fixed assets - +1 yr (PPE)

• other assets = not current or fixed (patents, copyright)

Balance Sheet Liabilities

Debt = money borrowed from creditor that MUST be paid back

short-term debt = current liabilities (w/in 12 months — account payable, accrued expenses, short-term notes)

long-term debt = long term liabilities (repayment time exceeds one year)

Balance Sheet Equity

S.H.E. = shareholder investment of pref and common stock

preferred = usually paid w/ fixed cash flow

common = rep. ownership in firm, residual owners

book value

historical cost of assets, liability and equity

market value

price at which assets, liabilities, or equity can actually be bought or sold today (more important in decision making process)

statement of cash flows

report impact of firms activities on CF over given period of time

• cf from operating

• cf from investing

• cf from financing

Common-size balance sheet

restates balance sheet items as a percentage of total assets, rather than $

makes easier to compare trends over time and across firms in industry

Networking capital

shows firm ability to meet short-term debt obligations

current assets - current liabilities

the larger, the better firm is able to repay

positive, zero, or neg

sources and uses of cash

cash inflow = firm “sells” something, buy credit, obtain financing

cash outflow = firm “buys” something, pay credit, pay investor