Finance and Accounting Lecture 2 Fall, 2010 9/21/2015FINA4330 Corporate Finance1 Corporate Finance Ronald F. Singer FINA 4330.

Slides:



Advertisements
Similar presentations
Financial Statements, Cash Flow, and Taxes
Advertisements

The Mechanics of Financial Accounting Presentations for Chapter 4 by Glenn Owen.
Ch. 2 - Understanding Financial Statements, Taxes, and Cash Flows , Prentice Hall, Inc.
FINANCIAL STATEMENTS Chapter 3 Balance Sheet Income Statement Statement of Cash Flows.
Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows  2005, Pearson Prentice Hall.
2-1 CHAPTER 2 Financial Statements, Cash Flow, and Taxes Balance sheet Income statement Statement of cash flows Accounting income vs. cash flow MVA and.
3-1 CHAPTER 3 Financial Statements, Cash Flow, and Taxes Balance sheet Income statement Statement of cash flows Accounting income vs. cash flow EVA Federal.
1 Republic of Macedonia-ESM EVN Income statement For the year ended 31 December _____ Note Current year Previous year Revenues Electricity revenues Other.
The Financial Statements
Chapter 3.
The Statement of Cash Flows Chapter 12. The statement of cash flows reports the entity’s cash flows (cash receipts and cash payments) during the period.
Chapter 3. SALES SALES - Cost of Goods Sold GROSS PROFIT GROSS PROFIT - Operating Expenses OPERATING INCOME (EBIT) OPERATING INCOME (EBIT) - Interest.
McClaren Corporation Income Statement For the Year Ended June 30, 2008 Revenue Sale Revenue $100,000 Sale Revenue $100,000 Total Sales Revenue 100,000.
Chapter 17: Cash Flow Statement
Financial Statements, Taxes, and Cash Flow
Accounting Basics: Agenda Introduction to Financial Statements – Balance Sheet – Income Statement – Statement of Cash Flows Metrics and Ratios.
FINANCIAL STATEMENTS.
Financial Ratio Analysis
Overview of Finance. Financial Management n The maintenance and creation of economic value or wealth.
Advanced Corporate Finance Ronald F. Singer FINA 7330 Review of Financial Management Lecture 1 Fall 2010.
CHAPTER 3 Financial Statements, Cash Flow, and Taxes
LECTURE “0” (SELF STUDY) Introduction to Financial Satement Analysis Berk, De Marzo Chapter 2.
1- 1 Corporate Finance and Applications – Review of Financial Topics for Case Studies Fall 2015 Dr. Richard Michelfelder.
Reporting and Analyzing Cash Flows Chapter 17. Purposes of the Statement of Cash Flows Designed to fulfill the following: – predict future cash flows.
REVIEW OF ACCOUNTING (Chapter 2) §Financial Statements l Balance Sheet l Income Statement l Statement of Cash Flows §Free Cash Flow §Corporate Taxes §Individual.
Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows 09/02/08.
Prepared by: C. Douglas Cloud Professor Emeritus of Accounting Pepperdine University Statement of Cash Flows Chapter 14.
Intro to Financial Management Understanding Financial Statements and Cash Flows.
Copyright © 2006 McGraw Hill Ryerson Limited3-1 prepared by: Sujata Madan McGill University Fundamentals of Corporate Finance Third Canadian Edition.
VANDERBILT INVESTMENT BANKING VANDERBILT INVESTMENT BANKING Meeting 6: Financial Accounting.
Financials Start up Cost Source of Funds EquityLoans $20K$25K $45K Operational costs Fixed$43,085$113,700$281,840 Variable$29,570$163,220$460,975.
Review of Financial Statements FWhy Do We Need Financial Statements?  F 3 Basic Financial Statements For Finance 
1 Chapter 2 Financial Statement and Cash Flow Analysis.
Slide 1 Understanding Financial Statements, Taxes, and Cash Flows Income Statement Balance Sheet Taxes Free Cash Flow (FCF)
©2012 McGraw-Hill Ryerson Limited Learning Objectives 1.Prepare and analyze the four basic financial statements. (LO1) 2.Examine the limitations of the.
6 - 1 Income statement Balance sheet Statement of cash flows Financial Statement.
The Financial Statements Presentations for Chapter 2 by Glenn Owen.
13-1 Preview of Chapter 13 Financial and Managerial Accounting Weygandt Kimmel Kieso.
STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition
STATEMENT OF CASH FLOWS Managerial Accounting, Fourth Edition
Th 9 ©The McGraw-Hill Companies, Inc Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt 2 C H A P T E R T W.
Th 9 ©The McGraw-Hill Companies, Inc Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt 2 C H A P T E R TWO.
Accounting & Finance Understanding the book value.
Financial Statements, Taxes and Cash Flow1 Financial Statements, Taxes and Cash Flows Financial Statements  Assets Building $190,000 Accumulated Depreciation.
Chapter 2 Introduction to Financial Statement Analysis.
Finance and Accounting Lecture 2 Fall, /28/2015FINA4330 Corporate Finance1 Corporate Finance Ronald F. Singer FINA 4330.
Chapter 3. Understanding Financial Statements and Cash Flows.
Accounting and Finance
Finance 206 Evaluating a firm’s Financial Performance.
MGT 497 Financial Statements Prof. Rick Hayes, Ph.D., CPA.
Chapter 2 Introduction to Financial Statement Analysis.
Ch. 3 - Understanding Financial Statements and Cash Flows , Prentice Hall, Inc.
3-1 CHAPTER 3 Financial Statements, Cash Flow, and Taxes Key Financial Statements Balance sheet Income statements Statement of retained earnings Statement.
Finance Chapter 2 Financial statements. Financial statements & reports  Annual report—a report issued once a year by a corporation to its stockholders,
Chapter 3 Fundamentals of Corporate Finance Fifth Edition Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc.
13-1 Preview of Chapter 13 Financial and Managerial Accounting Weygandt Kimmel Kieso.
PREPARE THE FOUR FINANCIAL STATEMENTS 1. INCOME STATEMENT 2. RETAINED EARNINGS STATEMENT 3. BALANCE SHEET 4. CASH FLOW STATEMENT.
McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 2-0 Corporate Finance Ross  Westerfield  Jaffe Seventh Edition.
FINANCIAL STATEMENTS.
STATEMENT OF CASH FLOWS Prepared by James R. Reap
The Statement of Cash Flows
PreviewofCHAPTER17.
Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows
Course Title: Financial Statement Analysis Course Code: MGT-537
Trial Balance Presented by: Leo, David, Sungtae, Ashley, Taiyuan.
Statement of Cash Flows
Financial Statements, Cash Flow, and Taxes
STATEMENT OF CASH FLOWS
FINANCIAL STATEMENT ANALYSIS
Intro to Financial Management
Presentation transcript:

Finance and Accounting Lecture 2 Fall, /21/2015FINA4330 Corporate Finance1 Corporate Finance Ronald F. Singer FINA 4330

Financial Statements Generally Finance Professionals get their information from Financial Statements prepared by accountants. In general, Financial Statements are used to determine how the firm “is doing,” in particular, how it has done over some period of time. 9/21/2015FINA4330 Corporate Finance2

Financial Statements Although we are also interested in the financial health of companies; generally, financial statements have to be modified in order to focus on our objective. In general, the “focus of our objective” is cash flow Most corporations prepare three basic financial statements: Income Statement Balance Sheet Cash Flow Statements 9/21/2015FINA4330 Corporate Finance3

Focus of Finance Cash Flow!!! What is Cash Flow? It is the amount of cash generated and available to security holders. 9/21/2015FINA4330 Corporate Finance4

Financial Statements Income Statement: – A Listing of Revenue, Expenses, and Profits over a period of time Balance sheet – A listing of Assets, Liabilities, and Net Worth at a single point in time. Generally in terms of Book Value. Cash Flow Statement – The Flow of Cash over a period of time 9/21/2015FINA4330 Corporate Finance5

Macintosh Enterprises Balance Sheet December 31, 2008 (BV $ thousands) Assets Liabilities and Stockholders Equity Current Assets Current Liabilities Cash 1,000 Accounts payable 500 Accounts Receivable 1,000 Notes payable 75 Inventory 450 Accrued expenses 75 Other 50 Total Current Liabilities 650 Total Current Assets $2,500 Long term Liabilities Fixed Assets Deferred Taxes 1,000 Property, Plant & equip. 4,600 Long term debt 2,000 Less Accumulated Dep. 600 Total long term liability 3,000 Net PP&E4,000 Intangible & Other assets1,000 Stockholders’ Equity ??? Total Assets $7,500 Total Liabilities and Stockholders’ Equity ??? 9/21/2015FINA4330 Corporate Finance6

Macintosh Enterprises Balance Sheet December 31, 2009 (BV $ thousands) Assets Liabilities and Stockholders Equity Current Assets Current Liabilities Cash 800 Accounts payable 650 Accounts Receivable 1,200 Notes payable 25 Inventory 550 Accrued expenses 75 Other 150 Total Current Liabilities 750 Total Current Assets $2,700 Long term Liabilities Fixed Assets Deferred Taxes 1,000 Property, Plant & equip. 4,600 Long term debt 2,000 Less Accumulated Dep. 600 Total long term liability 3,000 Net PP&E4,000 Intangible & Other assets1,000 Stockholders’ Equity ??? Total Assets $7,500 Total Liabilities and Stockholders’ Equity ??? 9/21/2015FINA4330 Corporate Finance7

Macintosh Enterprises Pro-Forma Income Statement (Year ending December 31, 2009) ($ thousand) Sales $5,000 Less: Operating Expenses (COGS) 2,000 Depreciation & Amortization 600 Selling, general and administrative exp. 300 Operating Income $2,100 Other income 100 Earnings Before Interest and Taxes (EBIT) 2,200 Less: Interest Expense 770 Pretax (Taxable) Income 1,430 Less Tax 40%) 572 Net Income (Earnings after Tax) $858 Addition to retained earnings 58 Dividends 800 Earnings per Share (EPS) = Net Income/Shares = $0.858 Dividends per share (DPS) = $0.80 9/21/2015FINA4330 Corporate Finance8

Transform income statement into Cash Flow Now we are ready to transform this income statement into Cash Flow Adjustments Necessary: 1. Changes in Fixed Assets: Depreciation and Amortization is not a cash expense and thus should not be subtracted from Cash Flow. But, New Investment is a cash expense (when paid for) and should be subtracted. 9/21/2015FINA4330 Corporate Finance9

Transform income statement into Cash Flow 2. Cost of Goods Sold (COGS) is the DIRECT expense associated with producing the goods that are sold in the period. Costs associated with goods that are produced but will be sold in future periods are not counted. If the firm pays for goods THAT ARE NOT SOLD, there is a cash flow out which must be accounted for. In order to account for this, we include changes in Inventory in the Cash Flow statement. 9/21/2015FINA4330 Corporate Finance10

Transform income statement into Cash Flow In general: Increases in Working Capital must be subtracted from Earning to get Cash Flow In this case suppose: Changes in Working Capital (+100) Change in cash -200 a/c receivable +200 a/c payable +150 Inventory +100 Notes payable -50 Other S.T.A +100 Total change /21/2015FINA4330 Corporate Finance11

Macintosh Enterprises Pro-Forma Cash Flow Statement (Year ending December 31, 2006) ($ thousand) Earnings Before Interest and Taxes (from Income Statement) $2,200 Less: Tax on Operations 40% (Note: tax rate times EBIT not $572) 880 Operating Income after Tax (EBIT(1-t)) 1,320 Plus: Non-Cash Expenses (Depreciation & Amortization) 500 1,820 Increase (decrease) in cash holdings -200 increase (decrease) in accounts receivable 200 increase (decrease) in Inventory 100 increase (decrease) in other Short Term Assets 100 Change in Short Term Assets 200 Less: increase (decrease) in accounts payable 150 increase (decrease) in Short Term Liabilities (50) Changer in Short Term Liabilities 100 Less: Net Change in Working Capital Free Cash Flow from Operations $1,520 Less: “After Tax” interest payments I(1-t) (note: = 770 (1-.40)) 462 Less: Dividends to preferred stockholders 100 Less: Investment (net of capital gains tax) 400 Free Cash Flow to Common Stockholders 558 EBITDA (2, ) $2,700 12