1. Financial statements Financial statements are general summaries of economic activity because user groups have diverse interests. 1

2. 2 The Balance Sheet

3. Some important issues Net working capital (NWC) Liquidity Debt versus equity Market value versus book value 3

4. Cash flow from assets The difference between the number of dollars that come in and the number that goes out. Crucial for capital budgeting analysis. Note that there is a standard accounting statement called the statement of cash flows, but it is different from what is nte necessary ingredient for financial analysis. 4

5. 5 Cash Flow Analysis

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7. 7

8. 8 Fantastic Copy Balance Sheet

9. 9

10. 10 Fantastic Copy Income Statement

11. 11 Fantastic Copy Cash Flow

12. 12 Fantastic Copy Cash Flow

13. 13 Taxes http://lsminsurance.ca/calculators/canada/income -tax http://lsminsurance.ca/calculators/canada/income -tax British Columbia (BC) 2005 Taxable Income2004 Taxable Income Marginal Tax Rate Other Income Capital Gains Canadian Dividends first $33,061first $32.47622.05%11.03%4.52% over $33,061 up to $35,595over $32,476 up to $35,00025.15%12.58%8.40% over $35,595 up to $66,123over $35,000 up to $64,95431.15%15.58%15.90% over $66,123 up to $71,190over $64,954 up to $70,00033.70%16.85%19.08% over $71,190 up to $75,917over $70,000 up to $74,57537.70%18.85%24.08% over $75,917 up to $92,185over $74,575 up to $90,55539.70%19.85%26.58% over $92,185 up to $115,739over $90,555 up to $113,80440.70%20.35%27.83% over $115,739over $113,80443.70%21.85%31.58% BC Basic Personal Amount 20052004Tax Rate $8,676$8,5236.05%

14. 14 Marginal versus Average

15. 15 Corporate Tax (Ontario)

16. 16 Capital Cost Allowance - Depreciation

17. Example 1: Firm “Fantastic copy” bought a photo-copier for $22,000 (asset class 8, 20%), calculate the CCA over the years. 17

18. 18 Depreciation on $22,000 Photocopier (CCA Class 8) Year UCC t CCA UCC t+1 111,0002,200$8,800 219,8003,960 15,840 315,8403,168 12,672 412,6722,534 10,138 510,1382,028 8,110 68,1101,622 6,488

19. A proposed cost saving device has an installed cost of 59,400. It is class 43 (30%) for CCA purposes. It will actually function for five years at which time it will have no value. Calculate UCC at the end of five years. 19 Example 2:

20. Question 2.30 Mississauga Manufacturing Ltd. Just invested in some new processing machinery to take advantage of more favorable CCA rates in a new federal budget. The machinery qualifies for 25% CCA rate and has an installed cost of $500,000. Calculate CCA and UCC for the first five years. 20