公司理财RossChap02

1、.Financial Statements and Cash FlowChapter 2Copyright 2010 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin2-1.Key Concepts and SkillsoUnderstand the information provided by financial statementsoDifferentiate between book and market valuesoKnow the difference between average

2、and marginal tax ratesoKnow the difference between accounting income and cash flowoCalculate a firms cash flow2-2.Chapter Outline2.1 The Balance Sheet2.2 The Income Statement2.3 Taxes2.4 Net Working Capital2.5 Financial Cash Flow2.6 The Accounting Statement of Cash Flows2.7 Cash Flow Management2-3.S

3、ources of InformationoAnnual reportsoWall Street JournaloInternetnNYSE ()nNASDAQ ()nTextbook ()oSECnEDGARn10K & 10Q reports2-4.2.1 The Balance SheetqAn accountants snapshot of the firms accounting value at a specific point in timeqThe Balance Sheet Identity is:Assets Liabilities + Stockholders E

4、quity2-5.U.S. Composite Corporation Balance Sheet2010200920102009Current assets:Current Liabilities: Cash and equivalents$140$107 Accounts payable$213$197 Accounts receivable294270 Notes payable5053 Inventories269280 Accrued expenses223205 Other5850 Total current liabilities$486$455 Total current as

5、sets$761$707Long-term liabilities:Fixed assets: Deferred taxes$117$104 Property, plant, and equipment$1,423$1,274 Long-term debt471458 Less accumulated depreciation(550)(460) Total long-term liabilities$588$562 Net property, plant, and equipment873814 Intangible assets and other245221Stockholders eq

6、uity: Total fixed assets$1,118$1,035 Preferred stock$39$39 Common stock ($1 par value)5532 Capital surplus347327 Accumulated retained earnings390347 Less treasury stock(26)(20) Total equity$805$725Total assets$1,879$1,742Total liabilities and stockholders equity $1,879$1,742The assets are listed in

7、order by the length of time it would normally take a firm with ongoing operations to convert them into cash.Clearly, cash is much more liquid than property, plant, and equipment.2-6.Balance Sheet AnalysisoWhen analyzing a balance sheet, the Finance Manager should be aware of three concerns:Liquidity

8、Debt versus equityValue versus cost2-7.Liquidity oRefers to the ease and quickness with which assets can be converted to cashwithout a significant loss in valueoCurrent assets are the most liquid.oSome fixed assets are intangible.oThe more liquid a firms assets, the less likely the firm is to experi

9、ence problems meeting short-term obligations.oLiquid assets frequently have lower rates of return than fixed assets.2-8.Debt versus EquityoCreditors generally receive the first claim on the firms cash flow.oShareholders equity is the residual difference between assets and liabilities.2-9.Value versu

10、s CostoUnder Generally Accepted Accounting Principles (GAAP), audited financial statements of firms in the U.S. carry assets at cost.oMarket value is the price at which the assets, liabilities, and equity could actually be bought or sold, which is a completely different concept from historical cost.

11、2-10.2.2 The Income StatementoMeasures financial performance over a specific period of timeoThe accounting definition of income is:Revenue Expenses Income2-11.U.S.C.C. Income Statement Total operating revenuesCost of goods soldSelling, general, and administrative expensesDepreciationOperating income

12、Other incomeEarnings before interest and taxesInterest expensePretax incomeTaxes Current: $71 Deferred: $13Net income Addition to retained earnings $43 Dividends: $43The operations section of the income statement reports the firms revenues and expenses from principal operations.$2,262 1,655 327 90$1

13、90 29$219 49$170 84$862-12.Total operating revenues$2,262Cost of goods sold 1,655Selling, general, and administrative expenses 327Depreciation 90Operating income$190Other income29Earnings before interest and taxes$219Interest expense 49Pretax income$170Taxes 84 Current: $71 Deferred: $13Net income$8

14、6 Addition to retained earnings: $43 Dividends: $43The non-operating section of the income statement includes all financing costs, such as interest expense.U.S.C.C. Income Statement2-13.Total operating revenuesCost of goods soldSelling, general, and administrative expensesDepreciationOperating incom

15、eOther incomeEarnings before interest and taxesInterest expensePretax incomeTaxes Current: $71 Deferred: $13Net income Addition to retained earnings: $43 Dividends: $43Usually a separate section reports the amount of taxes levied on income.$2,262 1,655 327 90$19029$219 49$170 84$86U.S.C.C. Income St

16、atement2-14.Total operating revenuesCost of goods soldSelling, general, and administrative expensesDepreciationOperating incomeOther incomeEarnings before interest and taxesInterest expensePretax incomeTaxes Current: $71 Deferred: $13Net income Retained earnings: $43 Dividends: $43Net income is the

17、“bottom line.”$2,262 1,655 327 90$19029$219 49$170 84$86U.S.C.C. Income Statement2-15.Income Statement AnalysisoThere are three things to keep in mind when analyzing an income statement:Generally Accepted Accounting Principles (GAAP)Non-Cash Items1.Time and Costs2-16.GAAPqThe matching principle of G

18、AAP dictates that revenues be matched with expenses. qThus, income is reported when it is earned, even though no cash flow may have occurred.2-17.Non-Cash ItemsqDepreciation is the most apparent. No firm ever writes a check for “depreciation.”qAnother non-cash item is deferred taxes, which does not

19、represent a cash flow.qThus, net income is not cash.2-18.Time and CostsqIn the short-run, certain equipment, resources, and commitments of the firm are fixed, but the firm can vary such inputs as labor and raw materials.qIn the long-run, all inputs of production (and hence costs) are variable.qFinan

20、cial accountants do not distinguish between variable costs and fixed costs. Instead, accounting costs usually fit into a classification that distinguishes product costs from period costs.2-19.2.3 TaxesoThe one thing we can rely on with taxes is that they are always changingoMarginal vs. average tax

21、ratesnMarginal the percentage paid on the next dollar earnednAverage the tax bill / taxable incomeoOther taxes2-20.Marginal versus Average Rates oSuppose your firm earns $4 million in taxable income.nWhat is the firms tax liability?nWhat is the average tax rate?nWhat is the marginal tax rate?oIf you

22、 are considering a project that will increase the firms taxable income by $1 million, what tax rate should you use in your analysis?2-21.2.4 Net Working CapitalqNet Working Capital Current Assets Current LiabilitiesoNWC usually grows with the firm 2-22.U.S.C.C. Balance Sheet2010200920102009Current a

23、ssets:Current Liabilities: Cash and equivalents$140$107 Accounts payable$213$197 Accounts receivable294270 Notes payable5053 Inventories269280 Accrued expenses223205 Other5850 Total current liabilities$486$455 Total current assets$761$707Long-term liabilities:Fixed assets: Deferred taxes$117$104 Pro

24、perty, plant, and equipment$1,423$1,274 Long-term debt471458 Less accumulated depreciation(550)(460 Total long-term liabilities$588$562 Net property, plant, and equipment873814 Intangible assets and other245221Stockholders equity: Total fixed assets$1,118$1,035 Preferred stock$39$39 Common stock ($1

25、 par value)5532 Capital surplus347327 Accumulated retained earnings390347 Less treasury stock(26)(20) Total equity$805$725Total assets$1,879$1,742Total liabilities and stockholders equity $1,879$1,742Here we see NWC grow to $275 million in 2010 from $252 million in 2009. This increase of $23 million

26、 is an investment of the firm.$23 million$275m = $761m- $486m$252m = $707- $4552-23.2.5 Financial Cash FlowoIn finance, the most important item that can be extracted from financial statements is the actual cash flow of the firm.oSince there is no magic in finance, it must be the case that the cash f

27、low received from the firms assets must equal the cash flows to the firms creditors and stockholders.CF(A) CF(B) + CF(S) 2-24.U.S.C.C. Financial Cash FlowCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending -173 (Acquisitions

28、 of fixed assets minus sales of fixed assets)Additions to net working capital-23 Total$42Cash Flow of Investors in the FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing) Total$42Operating Cash Flow:EBI

29、T$219Depreciation $90Current Taxes -$71OCF$2382-25.U.S.C.C. Financial Cash FlowCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital To

30、talCash Flow of Investors in the FirmDebt (Interest plus retirement of debt minus long-term debt financing)Equity (Dividends plus repurchase of equity minus new equity financing) TotalCapital SpendingPurchase of fixed assets $198Sales of fixed assets -$25Capital Spending $173-173-23$42$366$422-26.U.

31、S.C.C. Financial Cash FlowCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital TotalCash Flow of Investors in the FirmDebt (Interest p

32、lus retirement of debt minus long-term debt financing)Equity (Dividends plus repurchase of equity minus new equity financing) TotalNWC grew from $275 million in 2010 from $252 million in 2009.This increase of $23 million is the addition to NWC.-173-23$42$366$422-27.U.S.C.C. Financial Cash FlowCash F

33、low of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital TotalCash Flow of Investors in the FirmDebt (Interest plus retirement of debt minus lon

34、g-term debt financing)Equity (Dividends plus repurchase of equity minus new equity financing) Total-173-23$42$366$422-28.U.S.C.C. Financial Cash FlowCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending (Acquisitions of fixed

35、assets minus sales of fixed assets)Additions to net working capital TotalCash Flow of Investors in the FirmDebt (Interest plus retirement of debt minus long-term debt financing)Equity (Dividends plus repurchase of equity minus new equity financing) TotalCash Flow to CreditorsInterest$49Retirement of

36、 debt 73Debt service122Proceeds from new debt sales -86Total $36-173-23$42$366$422-29.U.S.C.C. Financial Cash FlowCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending (Acquisitions of fixed assets minus sales of fixed assets)

37、Additions to net working capital TotalCash Flow of Investors in the FirmDebt (Interest plus retirement of debt minus long-term debt financing)Equity (Dividends plus repurchase of equity minus new equity financing) TotalCash Flow to StockholdersDividends $43Repurchase of stock 6Cash to Stockholders 4

38、9Proceeds from new stock issue -43Total $6-173-23$42$366$422-30.U.S.C.C. Financial Cash FlowCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending (Acquisitions of fixed assets minus sales of fixed assets)Additions to net worki

39、ng capital TotalCash Flow of Investors in the FirmDebt (Interest plus retirement of debt minus long-term debt financing)Equity (Dividends plus repurchase of equity minus new equity financing) Total)()()(SCFBCFACFThe cash flow received from the firms assets must equal the cash flows to the firms cred

40、itors and stockholders:-173-23$42$366$422-31.2.5 The Statement of Cash FlowsoThere is an official accounting statement called the statement of cash flows.oThis helps explain the change in accounting cash, which for U.S. Composite is $33 million in 2010.oThe three components of the statement of cash

41、flows are:nCash flow from operating activitiesnCash flow from investing activitiesnCash flow from financing activities2-32.U.S.C.C. Cash Flow from OperationsTo calculate cash flow from operations, start with net income, add back non-cash items like depreciation and adjust for changes in current asse

42、ts and liabilities (other than cash).OperationsNet IncomeDepreciationDeferred TaxesChanges in Assets and LiabilitiesAccounts ReceivableInventoriesAccounts PayableAccrued ExpensesOtherTotal Cash Flow from Operations$869013-24111618$202-82-33.U.S.C.C. Cash Flow from InvestingCash flow from investing a

43、ctivities involves changes in capital assets: acquisition of fixed assets and sales of fixed assets (i.e., net capital expenditures).Acquisition of fixed assetsSales of fixed assetsTotal Cash Flow from Investing Activities-$19825-$1732-34.U.S.C.C. Cash Flow from FinancingCash flows to and from creditors and owners include changes in equity and debt.Retirement of debt (includes notes)Proceeds from long-term debt sales-$73 86Total Cash Flow from Financing $4DividendsRepurchase of stock-43Proceeds from new stock issue 43-6 Change in notes payable -32-35.U.S.C.C. Statement of Cash Flow