Business Finance Michael Dimond.

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Presentation transcript:

Business Finance Michael Dimond

Understanding financial statements Balance Sheet Income Statement Statement of Cash Flows Statement of Shareholders’ Equity

Income Statement – Target Corp

Balance Sheet – Target Corp

Statement of Cash Flows – Target Corp

Cash Inflows and Cash Outflows How a business produces and consumes cash matters because it creates or destroys value which belongs to the owners of the business. Consider the statement of cash flows (direct method): Cash received from customers is an inflow (revenue minus Δ A/R) :. On the indirect statement of cash flows, the Δ in A/R represents a use of cash Cash disbursed for merchandise is an outflow (purchases minus Δ A/P) :. On the indirect statement of cash flows, the Δ in A/P represents a source of cash

How our author computes cash flow A = L + E Assets produce cash flows. Our author calls this “Cash Flow From Assets” (CFFA) Liability holders receive cash flows. Our author calls this “Cash Flow To Creditors” (CF/CR) The remaining cash flows are available to benefit owners. Our author calls this “Cash Flow To Stockholders” (CF/SH)

How our author computes cash flow Cash Profits After Taxes: EBIT + Depreciation – Total Taxes

How our author computes cash flow Cash Flow From Assets (CFFA) = EBIT + Depreciation – Total Taxes – Net Capital Spending (NCS) – Changes in NWC (ΔNWC) = Cash Flow to Creditors (CF/CR) + Cash Flow to Stockholders (CF/SH)