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Accounting Statements
Corporate Finance
Ross Westerfield Jaffe
2
Sixth Edition
and Cash Flow
Liquidity
Income Statement
CANADIAN COMPOSITE CORPORATION
Income Statement
20X2
(in $ millions)
Income Statement
CANADIAN COMPOSITE CORPORATION
Income Statement
20X2
(in $ millions)
Income Statement
CANADIAN COMPOSITE CORPORATION
Income Statement
20X2
(in $ millions)
Income Statement
CANADIAN COMPOSITE CORPORATION
Income Statement
20x2
(in $ millions)
1. GAAP
• The matching principal of GAAP dictates that
revenues be matched with expenses. Thus,
income is reported when it is earned, even
though no cash flow may have occurred.
• For example,when goods are sold for credit,
sales and profits are reported.
CF ( A) CF ( B) CF ( S )
Assignments
For example you would set up a new business
• Determine the type of business
• Determine the amount of planned investment
in fixed assets and current assets to the
business plan. Because of this initial
investment, then there is no receivable.
• Source of funds to finance the investment
plan, 60% equity, 15% short-term debt, 25%
long-term debt with interest rate of 12% per
year
Make the initial balance sheet before the business
is run.
McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited
2-31
Asignments
After running the business for a quarter, make
the Income Statement during the quarter
consisting of:
• Sales, Cost of Goods Sold, Operational costs,
The cost of interest on long-term debts, 20%
corporate tax.
• Assumed :
70% of sales paid during the quarter and
30% paid next quarter
50% of net profits as retained earnings and
50% paid as dividends.
McGraw-Hill Ryerson © 2003 McGraw–Hill Ryerson Limited
2-32
Assignments
Make the Balance Sheet at the end of the quarter
based on the information:
• From income statement
• During the quarter, short-term debt rose by
25%, but also made a payment of 20% of the
previous debt.
• Issuance of new shares of 20% from the
previous
• During the quarter has purchased fixed assets
of 10% from the previous
Quick assets
Quick ratio
Total current liabilities
Activity ratios
Profitability ratios
Net income
Net profit margin
Total operating revenue
Market price/share
Price - Earnings ratio
current annual earnings /share
Remarks on ratios