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10/5/2018

Financial Statements
Financial Statements presents what happed to assets,
cash flows, earning, dividends during past few years.

Annual report presents following four basic financial


statements:
• Balance sheet – provides a snapshot of a firm’s
financial position at one point in time
• Income statement – summarizes a firm’s revenues
and expenses over a given period of time
• Statement of cash flows – reports the impact of a
firm’s activities on cash flows over a given period of
time
• Statement of stockholders’ equity – shows how
much of the firm’s earnings were retained, rather
than paid out as dividends.
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The Balance Sheet (cont’d)

• Snapshots of its financial statement often on the last day of each year
(10-K) or the last day of each quarter (10-Q)
• A firm’s level of assets and the manner in which they have used debt
and equity to fund those assets

support fund
Operations Assets Debt & Equity

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The Balance Sheet (cont’d) The Balance Sheet (cont’d)


Cash accounts operating
operating
payable current
current
assets
short-term
investment
current accruals
liabilities
• The balance means “total assets” = “total liabilities and equity”
• Assets:
liabilities
Accounts
notes
receivable total payable

Inventory
current
assets
liabilities
long-term
total
debts
• Listed in order of reduced liquidity
bonds
total
total
liabilities
preferred
stock
• Liabilities and equity
assets
• Listed in order in which they must be paid
net plant & equities
long- common
and
term stock
equipment common
fixed
assets equities
other long- retained
term assets earnings

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The Balance Sheet (cont’d) The Balance Sheet (cont’d)


• Total assets = total liabilities
• Stockholders’ equity = Total assets – Total liabilities –Preferred stock = Paid-in
capital (common stocks) + Retained earnings
• Total liabilities = total debt + operating current liabilities =(long-term debt +
short-term debt) +(accounts payable + accruals) = long-term bond + current
liabilities
• Working capital = current assets
• Net working capital = Current assets – Current liabilities
• Net operation working capital (NOWC) = Operating current assets –Operating
current liabilities
=(Current assets - ST investment)-(Current liabilities – Notes payable) = (cash +
accounts receivable + inventory) – (accounts payable + accruals)
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The Income Statement The Income Statement (cont’d)


Revenue
• Financial performance over each of the last two years - Cost of revenue
Net sales (gross margin)
• It can cover any period of time, but is usually prepared monthly, - Operating costs
quarterly, and annually Earnings before interests, taxes, depreciations, and amortization,
• Unlike the balance sheet, which is a snapshot of a firm at a point in time, EBITD&A
the income statement reflects performance during the period - Depreciation & Amortization

• It gives an indication of a firm’s operating ability Earnings before interests and taxes, EBIT (operating income)
- Interests
• The “bottom line” of an income statement is the firm's net income Earnings before taxes, EBT
• See the excel spreadsheet for details - Taxes
Net Income before preferred dividends
- Preferred dividends
Net Income
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The Income Statement (cont’d)


• Net income is non-operating income because of interests expenses
and taxes
• Two companies with identical operating may report different net
incomes
• Analysts therefore also interested in the operating income
• Operating income (or EBIT) = Net sales – Operating costs

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Assets = 8 million
Current Liabilities = 3 million EBT= 2,000,000 = 2 million
Long term debt (liability) =2 million Interest=300,000 = 0.3 million
Preferred Stock = 1 million
Depreciation= 200,000 = 0.2 million
Common Equity = 8-3-2-1 = 2 million
EBITDA = EDT+ Interest+ Depreciation = 2.5 Million

Revenue (Sales) = 7 million


Cost of Goods = 4 million
Gross Income/Profit = 7 – 4 = 3 million.
Operating Expenses = 0.5 million.
EBITDA= 7 – 4 – 0.5 = 2.5 million

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NI = 80 million
RE (Y0)= 570 million
RE(Y1) = 600 million
Dividends= 570+80-600= 50 million

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