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Cash Flows

Cash Flows

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9 views

Cash Flows

Cash Flows

Uploaded by

mikasaxchann
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Chapter 3 -

Understanding Financial
Statements, Taxes, and Cash
Flows
Income Statement

SALES
- EXPENSES
= PROFIT
Income Statement

Revenue
SALES
- EXPENSES
= PROFIT
Income Statement

SALES •Cost of Goods Sold


•Operating Expenses
- EXPENSES (marketing, administrative)
•Financing Costs
= PROFIT
•Taxes
SALES Income Statement
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses
OPERATING INCOME (Earnings Before
Interest Taxes)
- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS
SALES Income Statement
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses

OPERATING INCOME (EBIT)


- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS
SALES Income Statement
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses

OPERATING INCOME (EBIT)


- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS
Balance Sheet

Outstanding
Debt
Total Assets = +
Shareholders’
Equity
Balance Sheet
Assets Liabilities (Debt) & Equity
Current Assets Current Liabilities
Cash Accounts Payable
Accrued Expenses
Marketable Securities Short-term notes
Accounts Receivable Long-Term Liabilities
Inventories Long-term notes
Prepaid Expenses Mortgages
Equity
Fixed Assets
Preferred Stock= fixed
Machinery & Equipment dividends
Buildings and Land Common Stock (Par
value) = fixed, variable,
Other Assets
constant(%)
Investments & patents Paid in Capital
Retained Earnings
Assets
 Current Assets: assets that are
relatively liquid, and are expected to be
converted to cash within a year.
 Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
Assets
 Current Assets: assets that are
relatively liquid, and are expected to be
converted to cash within a year.
 Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
 Fixed Assets: machinery
and equipment, buildings,
and land.
Assets
 Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
 Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
 Fixed Assets(valuable), collateral:
machinery and equipment, buildings, and
land.
 Other Assets: any asset that is not a current
asset or fixed asset.
 Intangible assets, such as patents and
copyrights.
Financing =borrowing and paying
 Debt Capital: financing provided by a
creditor.
 Short-term debt: borrowed money that
must be repaid within the next 12 months.
 Accounts payable, other payables such as
interest or taxes payable, accrued expenses,
short-term notes.
 Long-term debt: loans from banks or other
sources that lend money for longer than 12
months.1M, 20k= 20-30%interest, 70-80% ,
10 years to pay, restructure my loan
Financing
 Equity Capital: shareholders’
investment in the firm.
 Preferred Stockholders: receive fixed
dividends, and have higher priority than
common stockholders in event of
liquidation of the firm.
 Common Stockholders: residual
owners of a business. They receive
whatever is left after creditors and
preferred stockholders are paid.
Free Cash Flows
Free cash flow= money is not profit: cash
flow that is free and available to be
distributed to the firm’s investors (both
debt and equity investors).
Free Cash Flows
Cash Flows from Cash Flows from
Assets = Financing

Cash flows generated Cash flows paid to - or


through the firm’s = received from - the
assets firm’s investors
(creditors &
stockholders)
Calculating Free Cash Flows:
An Asset Perspective

After-tax cash flow


from operations
less
investment in net
operating
working capital
less
investments in fixed
and other assets
Calculating Free Cash Flows:
An Asset Perspective

Operating income
After-tax cash flow + depreciation
from operations - cash tax payments
less
investment in net
operating
working capital
less
investments in fixed
and other assets
Calculating Free Cash Flows:
An Asset Perspective

After-tax cash flow


from operations
[Change in current
less
investment in net -
assets]

[change in non-interest
operating
bearing current liabilities]
working capital Net working capital = CA-
less CL

investments in fixed
and other assets
Calculating Free Cash Flows:
An Asset Perspective

After-tax cash flow


from operations
less
investment in net Change in gross
operating fixed assets, and
working capital any other assets
that are on the
less
balance sheet.
investments in fixed
and other assets
Calculating Free Cash Flows:
A Financing Perspective

Interest payments to creditors

- change in debt principal

- dividends paid to stockholders

- change in stock

= Financing Free Cash Flows

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