Ch 2

Balance Sheet

  • Shows a firm's assets, liabilities, and equity at a specific point in time.
  • Assets (what the firm owns) are financed by liabilities and equity.
    • Assets = Liabilities + Equity
  • Assets include:
    • Current Assets: Converted to cash within 12 months (e.g., cash, inventory, accounts receivable).
    • Fixed Assets: Long-term assets.
      • Tangible: Buildings, land, plant.
      • Intangible: Brand, patents.
  • Liabilities & Owner’s Equity (what the firm owes):
    • Liabilities (부채):
      • Current Liabilities: Paid back within a year (e.g., accounts payable, notes payable).
      • Long-term Liabilities: Due in more than a year (e.g., bank loans, bonds).
    • Owner’s Equity (자기자본):
      • Common stock, preferred stock, capital surplus, retained earnings.
  • Balance Sheet Identity: Assets=Liabilities+EquityAssets = Liabilities + Equity
  • Net Working Capital (NWC): Current Assets - Current Liabilities.
    • If CA > CL: Enough current assets to cover liabilities.
    • If CA < CL: Insufficient current assets.
  • Market Value vs. Book Value:
    • Book value is from the balance sheet.
    • Market value is the actual price if bought or sold.
    • Market value is more important for decision-making.

Income Statement

  • Measures performance over a period (e.g., annual, quarterly).
  • Format:
    • Sales - Cost of goods sold - Selling, general, administrative expenses - Depreciation = EBIT (Earnings Before Interest and Taxes)
    • EBIT - Interest expense = EBT (Earnings Before Taxes)
    • EBT - Taxes = Net Income (for dividends and/or retained earnings)

Cash Flow

  • Difference between money coming in and going out.
  • Cash Flow Identity:
    • Cash flow from assets = Cash flow to creditors + Cash flow to stockholders
    • Cash flow from assets = Operating cash flow - Net Capital spending - Change in net working capital
  • Operating Cash Flow (OCF) = EBIT+Depreciation−TaxesEBIT + Depreciation - Taxes
  • Net Capital Spending = Endingnetfixedassets−Beginningnetfixedassets+DepreciationEnding net fixed assets - Beginning net fixed assets + Depreciation
  • Change in Net Working Capital = EndingNWC−BeginningNWCEnding NWC - Beginning NWC
  • Cash flow to creditors = Interestpayments−NetnewborrowingsInterest payments - Net new borrowings
  • Cash flow to stockholders = Dividendspaid−NetnewequityraisedDividends paid - Net new equity raised
  • Cash Flow Summary Equations
    • Cash flow from assets = Cash flow to creditors + Cash flow to stockholders
    • Cash flow from assets = Operating cash flow – Net capital spending – Changes in net working capital