Chapter 2 Financial Statements, Taxes and Cash Flow 5/17/2018 Chapter 2 Financial Statements, Taxes and Cash Flow Balance Sheet Income Statement Taxes Cash flow 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 1: Introduction to Financial Management Clicker Question     Honestly, compared to the other people in this room, rate your automobile driving skills: A. much better than average B. somewhat better than average C. about average D. somewhat worse than average E. much worse than average 5/17/2018 Chapter 1: Introduction to Financial Management

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Balance Sheet Current Assets Long Term (Fixed) Assets Current Liabilities Long Term Liabilities Equity/Net Worth Ball Corporation (NYSE: BLL) 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Balance Sheet Definition: 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Balance Sheet “Box” 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Balance Sheet Net Working Capital Current assets less current liabilities 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Balance Sheet Book Value of Equity Assets less liabilities Market Value of Equity Market price times shares outstanding 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Balance Sheet “Identities” 5/17/2018 Balance Sheet “Identities” Total Assets = 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Balance Sheet “Identities” 5/17/2018 Balance Sheet “Identities” Total Liabilities = 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 1: Introduction to Financial Management Clicker Question     Calculate Net Fixed Assets, given: Net working capital = 1,100 Current liabilities = 2,200 Long-term liabilities = 4,500 Equity = 2,000 A. 8,700 B. 5,400 C. 4,500 D. 3,300 5/17/2018 Chapter 1: Introduction to Financial Management

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Income Statement Accrual versus Cash Accounting 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Income Statement Revenue - Cost of revenue - Selling, general, administrative - Depreciation = Earnings before interest and taxes - Interest = Earning before tax - Tax = Net income Ball Corporation (NYSE: BLL) 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Income Statement Dividends per share (DPS) Earnings per share (EPS) 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Taxes Progressive Tax System Marginal Tax Rate Average Tax Rate 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 1: Introduction to Financial Management Corporate Taxes and Tax Rates Taxable Income   Tax Rate Total Tax - 50,000 15% 7,500 50,001 75,000 25% 13,750 75,001 100,000 34% 22,250 100,001 335,000 39% 113,900 335,001 10,000,000 3,400,000 10,000,001 15,000,000 35% 5,150,000 15,000,001 18,333,333 38% 6,416,667 18,333,334+ 5/17/2018 Chapter 1: Introduction to Financial Management

Chapter 1: Introduction to Financial Management Clicker Question Calculate the tax on $150,000 taxable earnings, given the tax table below: Taxable Income Tax Rate Total Tax - 50,000 15% 7,500 50,001 75,000 25% 13,750 75,001 100,000 34% 22,250 100,001 335,000 39% 113,900 335,001 10,000,000 3,400,000 10,000,001 15,000,000 35% 5,150,000 15,000,001 18,333,333 38% 6,416,667 18,333,334+ A. 22,250 B. 23,500 C. 41,750 D. 113,900 E. 152,100 5/17/2018 Chapter 1: Introduction to Financial Management

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Clicker Question Between 1913 and 2003, what was the lowest top marginal tax rate paid by individuals? A. 7% B. 10% C. 15% D. 17% E. 19% 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Clicker Question Between 1913 and 2003, what was the highest top marginal tax rate paid by individuals? A. 38% B. 50% C. 58% D. 77% E. 92% 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Clicker Question What is the estimated percentage of US corporations that paid NO federal taxes between 1996 and 2000? A. 10% B. 20% C. 40% D. 60% E. 80% 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Cash flow Operating Cash Flow OCF = EBIT + Dep – Tax Capital Spending CapX = FA1 – FA0 + Dep 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Cash flow Change in Net Working Capital ΔNWC = NWC1 – NWC0 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Cash flow CF from Assets (Free Cash Flow) FCF = OCF – CapX – ΔNWC 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 2: Financial Statements, Taxes, and Cash Flow 5/17/2018 Cash flow CF from Assets (Free Cash Flow) Alternate definition FCF = CF to creditors + CF to shareholders 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Cash flow (sources and uses) 5/17/2018 Cash flow (sources and uses) Item Source or Use? A/R increase Inventory increase A/P increase Notes payable increase LT debt increase Clicker Question Depreciation increase? Source Use 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow

Chapter 1: Introduction to Financial Management Source or Use? 5/17/2018 Chapter 1: Introduction to Financial Management

Chapter-end Homework Problems 5/17/2018 Chapter-end Homework Problems Chapter 2 Problems 1, 3, 5, 7, 9, 11-13 5/17/2018 Chapter 2: Financial Statements, Taxes, and Cash Flow