1. Fin 301 - Dr. Menahem Rosenberg1 Financial Statement  The Balance Sheet  The Income Statement  The Statement of Cash Flows  Accounting for Differences

2. Fin 301 - Dr. Menahem Rosenberg2 The Balance Sheet Definition Financial statements that show the value of the firm’s assets and liabilities at a particular point in time (from an accounting perspective).

3. Fin 301 - Dr. Menahem Rosenberg3 The Balance Sheet The Main Balance Sheet Items Current Assets Cash & Securities Receivables Inventories + Fixed Assets Tangible Assets Intangible Assets Current Liabilities Payables Accruals Short-term Debt + Long-term Liabilities + Shareholders’ Equity =

4. Fin 301 - Dr. Menahem Rosenberg4 Market Value vs. Book Value Book Values are determined by GAAP Market Values are determined by current values Equity and Asset “Market Values” are usually higher than their “Book Values”

5. Fin 301 - Dr. Menahem Rosenberg5 The Income Statement Definition Financial statement that shows the revenues, expenses, and net income of a firm over a period of time (from an accounting perspective).

6. Fin 301 - Dr. Menahem Rosenberg6 The Income Statement Earnings Before Income & Taxes (EBIT) EBIT = - total Revenues - costs - deprecation

7. Fin 301 - Dr. Menahem Rosenberg7 The Income Statement Timberland Co. Year End 12/31/2001- in thousands Revenue1,183,623 COGS662,848 SG&A334,490 EBIT186,285 Depreciation & Amortization23,192 Interest Expense1,560 Other income196 EBT161,729 Tax Expense54,988 Net Income106,741 Average O/S shares 40,247

8. Fin 301 - Dr. Menahem Rosenberg8 Profits vs. Cash Flows Differences  “Profits” subtract depreciation (a non-cash expense)  “Profits” ignore cash expenditures on new capital (the expense is capitalized)  “Profits” record income and expenses at the time of sales, not when the cash exchanges actually occur  “Profits” do not consider changes in working capital

9. Fin 301 - Dr. Menahem Rosenberg9 The Statement of Cash Flows Definition Financial statement that shows the firm’s cash receipts and cash payments over a period of time.

10. Fin 301 - Dr. Menahem Rosenberg10 The Statement of Cash Flows + Net Income + Non-cash expenses +Depreciation Changes in working capital - chg A/R +chg A/P -chg Inv = Cash Flow from Operations Cash from New Investments - purchases + sales Cash from Financing- repurchase of stock or debt + sales of stock or debt - dividend Net Change in Cash Position (from previous B/S to current)

11. Fin 301 - Dr. Menahem Rosenberg11 Accounting for Differences  Subjective aspects exist in reporting earnings and book value  Some liabilities may excluded from balance sheets (off balance sheet financing).  International accounting standards vary  Share outstanding in per share computations

12. Fin 301 - Dr. Menahem Rosenberg12 Leverage Ratios

13. Fin 301 - Dr. Menahem Rosenberg13 Liquidity Ratios

14. Fin 301 - Dr. Menahem Rosenberg14 Efficiency Ratios

15. Fin 301 - Dr. Menahem Rosenberg15 Profitability Ratios

16. Fin 301 - Dr. Menahem Rosenberg16 Market Value Ratios