1. Corporate finance Summer 2017
Organizing Financial data /financial Statements/
Wednesday, April 25, 2018

2. Organizing Financial data /financial STATEMENTS/
Corporate finance
Organizing Financial data /financial STATEMENTS/
Financial assets
Seminar 4
financial STATEMENTS
19:02

3. Financial statements - Definitions
Balance Sheet
Snapshot of a firm’s wealth – and how it has funded that wealth.
Income Statement
Profit or loss (P&L) of a business over time.
Cash Flow Statement
Tracks the inflows & outflows of cash.
financial STATEMENTS
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4. Financial statements ASSETS LIABILITIES + EQUITY BALANCE SHEET
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5. Financial statements АКТИВИ ПАСИВИ + СОБСТВЕН КАПИТАЛ
СЧЕТОВОДЕН БАЛАНС
АКТИВИ
ПАСИВИ +
СОБСТВЕН КАПИТАЛ
financial STATEMENTS
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6. Balance Sheet Current Assets +Long-term Assets = Total Assets
Snapshot of a firm’s wealth – and how it has funded that wealth
Current Assets
+Long-term Assets
= Total Assets
Current Liabilities
+Long-term Liabilities
= Total Liabilities
Capital Investment
+Retained Earnings
= Total Equity
financial STATEMENTS
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7. Balance Sheet Assets= Liabilities + Equity
Assets = Wealth = Use of Funds
financial STATEMENTS
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8. Balance Sheet Assets= Liabilities + Equity
The specific types of assets a firm owns depends on the nature of its business :
manufacturing
Merchandising
financial
service.
Definition: an operating cycle is defined as the elapsed time between the start of production and the eventual receipt cash from customers from the sale of the product
financial STATEMENTS
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9. Balance Sheet Assets= Liabilities + Equity
Current assets
Cash and other assets that are reasonably expected to be realized in cash or consumed during the normal operating cycle of the business
Cash and cash equivalents
􀂄Short-term investments --at market value --We will discuss this in detail later.
􀂄Accounts receivable --Net realizable value
􀂄Inventory --Lower of Historical Cost or Market Value (current replacement cost)
􀂄Prepaid expenses
financial STATEMENTS
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10. Balance Sheet Assets= Liabilities + Equity
Long-Term Investments
Investments intended to be held for a period of time usually extending beyond one year.
Debt and equity securities such as stocks, bonds, and long-term notes receivable.
Tangible assets not currently used in operations, e.g., land held for investment purposes.
Property, Plant, and Equipment
Intangible Assets
Long-Term Investments
Investments intended to be held for a period of time usually extending beyond one year.
Debt and equity securities such as stocks, bonds, and long-term notes receivable.
Tangible assets not currently used in operations, e.g., land held for investment purposes.
Property, Plant, and Equipment
Assets of a durable nature that are to be used in the production or sale of goods, or rendering of services, rather than being held for sale.
Machinery, Factory Building, etc.
Carried at Cost (-) Accumulated Depreciation
Land on which the company conducts its operations is carried on the balance sheet at the original cost –no depreciation.
Distinguish from land held for investment purposes.
Intangible Assets
Non-current, non-physical assets of a business, the possession of which provides uncertain future benefits to the owner
E.g., goodwill, trademarks, patents, copyrights, etc.
Is accounts receivable an intangible asset?
Not for accounting purposes
Intangible assets are carried on the balance sheet at cost (-) accumulated amortization.
Cost = Whatever was paid to acquire them.
Internally generated intangible assets are not shown as assets
financial STATEMENTS
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11. Balance Sheet Assets= Liabilities + Equity
Assets ARE
Platform for growth
financial STATEMENTS
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12. Balance Sheet Assets= Liabilities + Equity
Liabilities = Leveraged Source of Funds
Nervous claims on wealth secured by contracts & collateral such as loans from vendors, banks, other sources, bonds
EXPAND POSSIBILITIES while INCREASING RISK
financial STATEMENTS
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13. Balance Sheet Assets= Liabilities + Equity
Current Liabilities
Obligations that are expected to be paid (or services expected to be performed) with the use of assets that are listed in the current section of the balance sheet.
Examples of current liabilities
accounts payable, wages payable, interest payable, income taxes payable, deferred revenues.
Current portion of long-term debts are classified as current liabilities.
However, debt expected to be refinanced through another long-term debt are treated as long-term liabilities.
What is the intuition here?
financial STATEMENTS
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14. Balance Sheet Assets= Liabilities + Equity
Long-term Liabilities
Obligations usually expected to require payment over a period of time beyond one year.
Usually financing obligations, e.g., arising from issuance of bonds, long-term notes, and mortgages.
􀂄The maturity date, the rate of interest, and any security pledged to support the borrowing agreement should be clearly shown.
Examples of Long-term liabilities
Usually financing obligations, e.g., arising from issuance of bonds, long-term notes, and mortgages.
The maturity date, the rate of interest, and any security pledged / заложени/ to support the borrowing agreement should be clearly shown.
financial STATEMENTS
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15. Balance Sheet Assets= Liabilities + Equity
Equity = Capital = Invested Source of Funds
More patient claim on wealth secured by control, especially owners’ capital plus retained profits
financial STATEMENTS
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16. Balance Sheet Assets= Liabilities + Equity
Stockholder`s Equity
Initial capital
Retained Earnings
Stockholders' Equity
The residual interest in the assets that remain after deducting the liabilities.
Contributed Capital
A measure of the capital contributed to the company by its owners.
Contribution can be through cash, noncashassets, or valuable services.
Different classes of capital: Common stock and Preferred stock
Retained earnings
􀂄A measure of undistributed profits of a business
􀂄Do not include capital contributed by owners
􀂄Retained earnings =
Retained Earnings
Cumulative sum of profits earned from the inception of business –
Cumulative sum of all “dividends” distributed to the owners from the inception of business
􀂄How does retained earnings change over a period of time(e.g., a year)
􀂄Beginning balance in retained earnings
􀂄AddNet income earned during the period
􀂄Subtract Dividends distributed during the period
􀂄Ending balance in retained earnings
financial STATEMENTS
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17. What type of account? Identify assets, liabilities, or equity.
Quiz
What type of account? Identify assets, liabilities, or equity.
Equipment
Goodwill developed by firm
Retained Earnings
Unsettled damage suit
Patent
Factory
Common Stock
Increase in value of land
Dividend Payable
Employee payroll taxes payable
Accumulated depreciation
Prepaid Expense
Supplies Inventory
Accounts Receivable
Land
Unsettled damage suit – непогасени присъдени дългове
financial STATEMENTS
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18. What type of account? Identify assets, liabilities, or equity.
Quiz
What type of account? Identify assets, liabilities, or equity.
Equipment
Goodwill developed by firm
Retained Earnings
Unsettled damage suit
Patent
Factory
Common Stock
Increase in value of land
Dividend Payable
Employee payroll taxes payable
Accumulated depreciation
Prepaid Expense
Supplies Inventory
Accounts Receivable
Land A A E L A A
A/E A L A L
Payable-дължими A A A A
financial STATEMENTS
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19. Financial statements EXPENSES REVENUE INCOME STATEMENT
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20. ОТЧЕТ ЗА ПРИХОДИ И РАЗХОДИ
Financial statements
ОТЧЕТ ЗА ПРИХОДИ И РАЗХОДИ
РАЗХОДИ
ПРИХОДИ
financial STATEMENTS
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21. Profit and Loss Statement - P&L
A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time - usually a fiscal quarter or year.
These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs.
The P&L statement is also known as a "statement of profit and loss", an "income statement" or an "income and expense statement".
Technical approach
financial STATEMENTS
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22. Profit and Loss Statement - P&L
A GENERAL FORM
It begins with an entry for revenue;
subtracts from revenue the costs of running the business;
including cost of goods sold, operating expenses, tax expense and interest expense.
The BOTTOM LINE (literally and figuratively) is NET INCOME (profit).
financial STATEMENTS
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23. Income Statement Profit or loss of a business over time
+ Net Revenues
- Cost of Goods Sold
= Gross Profit (Gross Income)
- Operating Expenses
= Operating Profit
+/- Other Income/Expenses
= Profit before tax (Tax Income)
- Tax
= Profit after tax (Net Income)
financial STATEMENTS
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24. Income statement R E V ENUE S Gross Profit Other Income
Operating Profit
Net Profit
P.A.T.
Cost of Goods Sold
Retained Earnings
Operating Expenses
Other Expenses
Tax
Dividents
financial STATEMENTS
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25. Income statement Net Revenues Cost of Goods Sold + Net Revenues
Sales
Cost of Goods Sold
Direct goods + direct labor per unit sold
Gross Profit
Amount left to cover operations
+ Net Revenues
- Cost of Goods Sold
= Gross Profit
financial STATEMENTS
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26. Income statement Operating Expenses = Gross Profit - Operating Expense
Salaries (benefits, taxes)
Sales & Marketing
General Administration (supplies, IT, insurance)
Space (rent, maintenance, utilities)
Depreciation (spreading capital expense over use/ time)
Professional fees
Operating Profit- Basic measure of success
= Gross Profit
- Operating Expense
= Operating Profit
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27. Income statement Other Income = Operating Profit +/- Other Inc or Exp
Sidelines (can be very valuable and/or indicate new businesses or products)
Interest
Other Expense
Cost of financing, especially interest on loans
Other miscellaneous expenses
Profit before Taxes
Net income
= Operating Profit
+/- Other Inc or Exp
= Profit before taxes
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28. Income Taxes Profit after Taxes Income statement State and local
Reinvest (retained earnings)
Distribute (dividends)
= Profit before Taxes
- Income Taxes
= Profit after Taxes
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29. Financial Statements
The balance sheet, income statement and statement of cash flows are the most important financial statements produced by a company.
While each is important in its own right, 
THEY ARE MEANT TO BE ANALYZED TOGETHER. 
financial STATEMENTS
19:02