1. Chapter 2 Financial Statements, Taxes and Cash Flow
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Chapter 2 Financial Statements, Taxes and Cash Flow
Balance Sheet
Income Statement
Taxes
Cash flow
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Chapter 2: Financial Statements, Taxes, and Cash Flow

2. 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
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Chapter 1: Introduction to Financial Management

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

4. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Balance Sheet
Definition:
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Chapter 2: Financial Statements, Taxes, and Cash Flow

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

6. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Balance Sheet
Net Working Capital
Current assets less current liabilities
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Chapter 2: Financial Statements, Taxes, and Cash Flow

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

8. Balance Sheet “Identities”
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Balance Sheet “Identities”
Total Assets =
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Chapter 2: Financial Statements, Taxes, and Cash Flow

9. Balance Sheet “Identities”
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Balance Sheet “Identities”
Total Liabilities =
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Chapter 2: Financial Statements, Taxes, and Cash Flow

10. 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
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Chapter 1: Introduction to Financial Management

11. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Income Statement
Accrual versus Cash Accounting
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Chapter 2: Financial Statements, Taxes, and Cash Flow

12. Chapter 2: Financial Statements, Taxes, and Cash Flow
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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)
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Chapter 2: Financial Statements, Taxes, and Cash Flow

13. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Income Statement
Dividends per share (DPS) Earnings per share (EPS)
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Chapter 2: Financial Statements, Taxes, and Cash Flow

14. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Taxes
Progressive Tax System
Marginal Tax Rate
Average Tax Rate
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Chapter 2: Financial Statements, Taxes, and Cash Flow

15. 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+
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Chapter 1: Introduction to Financial Management

16. 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 ,250
B ,500
C ,750
D ,900
E ,100
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Chapter 1: Introduction to Financial Management

17. Chapter 2: Financial Statements, Taxes, and Cash Flow
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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%
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Chapter 2: Financial Statements, Taxes, and Cash Flow

18. Chapter 2: Financial Statements, Taxes, and Cash Flow
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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%
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Chapter 2: Financial Statements, Taxes, and Cash Flow

19. Chapter 2: Financial Statements, Taxes, and Cash Flow
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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%
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Chapter 2: Financial Statements, Taxes, and Cash Flow

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

21. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Cash flow
Change in Net Working Capital
ΔNWC = NWC1 – NWC0
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Chapter 2: Financial Statements, Taxes, and Cash Flow

22. Chapter 2: Financial Statements, Taxes, and Cash Flow
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Cash flow
CF from Assets (Free Cash Flow)
FCF = OCF – CapX – ΔNWC
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Chapter 2: Financial Statements, Taxes, and Cash Flow

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

24. Cash flow (sources and uses)
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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
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Chapter 2: Financial Statements, Taxes, and Cash Flow

25. Chapter 1: Introduction to Financial Management
Source or Use?
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Chapter 1: Introduction to Financial Management

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