公司理财教学课件：ch09 Financial Statements,Cash Flow,and Taxes

BalancesheetIncomestatementStatementofcashflowsAccountingincomeversuscashflowMVAandEVAPersonaltaxesCorporatetaxesCHAPTER9FinancialStatements,

CashFlow,andTaxesIncomeStatement

2001

2002Sales 3,432,000 5,834,400COGS 2,864,000 4,980,000Otherexpenses 340,000 720,000Deprec. 18,900

116,960

Tot.op.costs 3,222,900

5,816,960

EBIT 209,100 17,440Int.expense 62,500

176,000

EBT 146,600 (158,560)Taxes(40%) 58,640

(63,424)Netincome 87,960

(95,136)Whathappenedtosalesandnetincome?Salesincreasedbyover$2.4million.Costsshotupbymorethansales.Netincomewasnegative.However,thefirmreceivedataxrefundsinceitpaidtaxesofmorethan$63,424duringthepasttwoyears.BalanceSheet:Assets

2001

2002Cash 9,000 7,282S-Tinvest. 48,600 20,000AR 351,200 632,160Inventories 715,200

1,287,360

TotalCA 1,124,000 1,946,802GrossFA 491,000 1,202,950Less:Depr. 146,200

263,160

NetFA 344,800 939,790Totalassets 1,468,800

2,886,592

Whateffectdidtheexpansionhaveontheassetsectionofthebalancesheet?Netfixedassetsalmosttripledinsize.ARandinventoryalmostdoubled.Cashandshort-terminvestmentsfell.StatementofRetainedEarnings:2002Balanceofret.earnings,12/31/2001

203,768 Add:Netincome,2002

(95,136) Less:Dividendspaid,2002

(11,000)

Balanceofret.earnings,12/31/2002

97,632

BalanceSheet:Liabilities&Equity

2001

2002Accts.payable 145,600 324,000Notespayable 200,000 720,000Accruals 136,000

284,960

TotalCL 481,600 1,328,960Long-termdebt 323,432 1,000,000Commonstock 460,000 460,000Ret.earnings 203,768

97,632

Totalequity 663,768 557,632TotalL&E 1,468,800

2,886,592

Whateffectdidtheexpansionhaveonliabilities&equity?CLincreasedascreditorsandsuppliers“financed”partoftheexpansion.Long-termdebtincreasedtohelpfinancetheexpansion.Thecompanydidn’tissueanystock.Retainedearningsfell,duetotheyear’snegativenetincomeanddividendpayment.StatementofCashFlows:2002OperatingActivities

NetIncome (95,136)Adjustments: Depreciation 116,960ChangeinAR (280,960)Changeininventories (572,160)ChangeinAP 178,400Changeinaccruals 148,960

Netcashprovidedbyops. (503,936)Long-TermInvestingActivities

CashusedtoacquireFA (711,950)FinancingActivities

ChangeinS-Tinvest. 28,600Changeinnotespayable 520,000Changeinlong-termdebt 676,568Paymentofcashdividends (11,000)Netcashprovidedbyfin.act. 1,214,168SummaryofStatementofCFNetcashprovidedbyops. (503,936)NetcashtoacquireFA (711,950)Netcashprovidedbyfin.act. 1,214,168

Netchangeincash (1,718)Cashatbeginningofyear 9,000Cashatendofyear 7,282Whatcanyouconcludefromthestatementofcashflows?NetCFfromoperations=-$503,936,becauseofnegativenetincomeandincreasesinworkingcapital.Thefirmspent$711,950onFA.Thefirmborrowedheavilyandsoldsomeshort-terminvestmentstomeetitscashrequirements.Evenafterborrowing,thecashaccountfellby$1,718.Whatisfreecashflow(FCF)?

Whyisitimportant?FCFistheamountofcashavailablefromoperationsfordistributiontoallinvestors(includingstockholdersanddebtholders)aftermakingthenecessaryinvestmentstosupportoperations.Acompany’svaluedependsupontheamountofFCFitcangenerate.WhatarethefiveusesofFCF?1.Payinterestondebt.2.Paybackprincipalondebt.3.Paydividends.4.Buybackstock.5.Buynonoperatingassets(e.g.,marketablesecurities,investmentsinothercompanies,etc.)Whatareoperatingcurrentassets?OperatingcurrentassetsaretheCAneededtosupportoperations.OpCAinclude:cash,inventory,receivables.OpCAexclude:short-terminvestments,becausethesearenotapartofoperations.Whatareoperatingcurrentliabilities?OperatingcurrentliabilitiesaretheCLresultingasanormalpartofoperations.OpCLinclude:accountspayableandaccruals.OpCAexclude:notespayable,becausethisisasourceoffinancing,notapartofoperations.Whateffectdidtheexpansionhaveonnetoperatingworkingcapital(NOWC)?NOWC02 =($7,282+$632,160+$1,287,360) -($324,000+$284,960) =$1,317,842.NOWC01 =$793,800.=-OperatingCAOperatingCLNOWCWhateffectdidtheexpansionhaveontotaloperatingcapital? =NOWC+Netfixedassets.

=$1,317,842+$939,790 =$2,257,632.

=$1,138,600.Operatingcapital02Operatingcapital01OperatingcapitalDidtheexpansioncreateadditionalnetoperatingprofitaftertaxes(NOPAT)?

NOPAT=EBIT(1-Taxrate)NOPAT02 =$17,440(1-0.4) =$10,464.NOPAT01 =$125,460.Whatwasthefreecashflow(FCF)

for2002?FCF=NOPAT-Netinvestmentincapital=$10,464-($2,257,632-$1,138,600)=$10,464-$1,119,032=-$1,108,568.Howdoyousupposeinvestorsreacted?ReturnonInvestedCapital(ROIC)ROIC=NOPAT/TotaloperatingcapitalROIC02=$10,464/$2,257,632=0.5%.ROIC01=11.0%.

Thefirm’scostofcapitalis10%.Didthegrowthaddvalue?No.TheROICof0.5%islessthantheWACCof10%.Investorsdidnotgetthereturntheyrequire.Note:HighgrowthusuallycausesnegativeFCF(duetoinvestmentincapital),butthat’sokifROIC>WACC.Forexample,HomeDepothashighgrowth,negativeFCF,butahighROIC.CalculateEVA.Assumethecostofcapital(WACC)was10%forbothyears.EVA=NOPAT-(WACC)(Capital)EVA02=$10,464-(0.1)($2,257,632) =$10,464-$225,763 =-$215,299.EVA01 =$125,460-(0.10)($1,138,600) =$125,460-$113,860 =$11,600.StockPriceandOtherData

2001

2002Stockprice $8.50 $2.25#ofshares 100,000 100,000EPS $0.88 -$0.95DPS $0.22 $0.11WhatisMVA(MarketValueAdded)?MVA=MarketValueoftheFirm-BookValueoftheFirmMarketValue=(#sharesofstock)(pricepershare)+ValueofdebtBookValue=Totalcommonequity+Valueofdebt(More…)MVA(Continued)Ifthemarketvalueofdebtisclosetothebookvalueofdebt,thenMVAis:

MVA=Marketvalueofequity –bookvalueofequityFind2002MVA.(Assumemarketvalueofdebt=bookvalueofdebt.)MarketValueofEquity2002:(100,000)($6.00)=$600,000.BookValueofEquity2002:$557,632.MVA02=$600,000-$557,632=$42,368.MVA01=$850,000-$663,768=$186,232.KeyFeaturesoftheTaxCodeCorporateTaxesIndividualTaxes2001CorporateTaxRatesTaxableIncomeTaxonBaseRate*0-50,000015%50,000-75,0007,50025%75,000-100,00013,75034%100,000-335,00022,25039%Over18.3M6.4M35%*Plusthispercentageontheamountoverthebracketbase....

...

...FeaturesofCorporateTaxationProgressiverateupuntil$18.3milliontaxableincome.Below$18.3million,themarginalrateisnotequaltotheaveragerate.Above$18.3million,themarginalrateandtheaveragerateare35%.FeaturesofCorporateTaxes(Cont.)Acorporationcan:deductitsinterestexpensesbutnotitsdividendpayments;carry-backlossesfortwoyears,carry-forwardlossesfor20years.exclude70%ofdividendincomeifitownslessthan20%ofthecompany’sstockAssumeacorporationhas$100,000oftaxableincomefromoperations,$5,000ofinterestincome,and$10,000ofdividendincome.Whatisitstaxliability?Operatingincome$100,000Interestincome5,000Taxabledividendincome3,000*Taxableincome$108,000Tax =$22,250+0.39($8,000) =$25,370.*Dividends-Exclusion

=$10,000-0.7($10,000)=$3,000.KeyFeaturesofIndividualTaxationIndividualsfaceprogressivetaxrates,from15%to39.1%.(TheTaxReliefActof2001willreducetheserates.)Therateonlong-term(i.e.,morethanoneyear)capitalgainsis20%.Butcapitalgainsareonlytaxedifyouselltheasset.Interestonmunicipal(i.e.,stateandlocalgovernment)bondsisnotsubjecttoFederaltaxation.IndividualRatesfor2001TaxableIncome

TaxonBase

Rate*0 - 27,050 0 15.0%27,050 - 65,550 4,057.5 27.5%65,550 - 136,750 14,645.0 30.5%136,750 - 297,350 36,361.0 35.5%297,350 - 93,374.0 39.1%*Plusthispercentageontheamountoverthebracketbase.Assumeyoursalaryis$45,000,andyoureceived$3,000individends.

Youaresingle,soyourpersonalexemptionis$2,900andyouritemizeddeductionsare$7,100. Onthebasisoftheinformationaboveandthe2001taxyeartaxrateschedule,whatisyourtaxliability?CalculationofTaxableIncomeSalary$45,000Dividends