Financial Statements And Cash Flow Analysis Professor XXXXX Course Name / Number

2 Financial Statements Balance Sheet Income Statement Managers and Analysts Use Financial Statement to Conduct: - Cash Flow Analysis - Performance (Ratio) Analysis

3 Four Key Financial Statements 1. Balance Sheet 2. Income Statement 3.Statement Of Retained Earnings 4.The Statement Of Cash Flows

4 Staples Balance Sheet ($ Thousands)

5 Staples Liabilities & Stockholders’ Equity ($ Thousands)

6 Staples Income Statement ($ Thousands)

7 The Sources and Uses of Corporate Cash Decrease in any asset Increase in any liability Net profits after taxes Depreciation and other non-cash charges Sale of stock Increase in any asset Decrease in any liability Net loss Dividends paid Repurchase or retirement of stock SourcesUses

8 Common stock Cumul. Translat adjustmt Retained earnings Treasury stock Income Balances February 1, ,485,132 11,4811,719,091(556,812)484,710 Equity offering252, CS issues for option exercise121, Tax benefit for option exercise30, CS to employee saving plan9, Sale of CS under ESOP16, Issues of restricted stock18, Translation adjustments---69, ,521 Reissuance of treasury stock Net income for year , ,211 Purchase of treasury stock--- (4,315)--- Other(367)--- Balances January 31, ,933,379 81,0022,209,302(561,099)559,732 Staples Statement Of Retained Earnings ($ Thousands)

9 Staples Statement Of Cash Flows ($ Thousands)

10 Staples Statement Of Cash Flows ($Thousands)

11 Profit vs. Cash Flow Profit based on Accrual Accounting Finance Emphasizes the Importance of Timing “You Can’t Deposit Net Income, Only Cash” Timing of Cash Flow Matters Accrual Accounting May Obscure Timing 11 What are the key measures of cash flow?

12 Key Measures of Cash Flow 12 Cash Flow from Operations Operating Cash Flow Free Cash Flow Total Cash Generated Cash Flow Before Repaying Lenders Cash Flow Firm Could Distribute to Investors

13 Current Ratio Quick Ratio Inventory Turnover Ratio Average Collection Period Debt-to-Equity Ratio Times Interest Earned Ratio Gross Margin EPS P/E Ratio Market-to-Book Ratio Types Of Financial Ratios Activity Ratios Debt Ratios Profitability Ratios Market Ratios Liquidity Ratios

14 Liquidity Ratios Staples (2004) Office Depot (2004)

15 Activity Ratios Staples (2004) Office Depot (2004)

16 Activity Ratios (Continued) Staples (2004) Office Depot (2004)

17 Debt Ratios Staples (2004) Office Depot (2004)

18 Debt Ratios (Continued) Staples (2004) Office Depot (2004)

19 Profitability Ratios Staples (2004) Office Depot (2004)

20 Profitability Ratios (Continued) Staples (2004) Office Depot (2004)

21 Profitability Ratios (Continued) Staples (2004) Office Depot (2004)

22 Market Ratios Staples (2004) Office Depot (2004)

23 Corporate Taxes Significant cash outflow Ordinary income tax Progressive tax rate schedule Average tax rate: tax divided by the pretax income More relevant: marginal tax rate Capital gains tax Under existing tax laws, use ordinary income tax rates for capital gain taxes

24 Financial Ratios For Cross- Sectional and Trend Analysis Cross-Sectional Analysis: Comparing Different Firms’ Financial Ratios at the Same Point in Time –Compared to firms in same industry –Benchmarking - compares a company’s ratio values to those of competitors that company wishes to emulate Trend Analysis - Performance Evaluation Over Time –Developing trends can be seen using multiyear comparison

25 Financial Statements and Financial Ratios Balance Sheet Income Statement Liquidity Ratios Activity Ratios Debt Ratios Profitability Ratios Market Ratios