罗斯财务管理-.ppt

Chapter 2Financial Statements,Taxes,and Cash FlowMcGraw-Hill/IrwinCopyright 2010 by The McGraw-Hill Companies,Inc.All rights reserved.1Key Concepts and SkillsKnow the difference between book value and market valueKnow the difference between accounting income and cash flowKnow the difference between average and marginal tax ratesKnow how to determine a firms cash flow from its financial statements2-22Chapter OutlineThe Balance SheetThe Income StatementTaxesCash Flow2-33Balance SheetThe balance sheet is a snapshot of the firms assets and liabilities at a given point in timeAssets are listed in order of decreasing liquidityEase of conversion to cashWithout significant loss of valueBalance Sheet IdentityAssets=Liabilities+Stockholders Equity2-44The Balance Sheet-Figure 2.12-55Net Working Capital and LiquidityNet Working Capital=Current Assets Current LiabilitiesPositive when the cash that will be received over the next 12 months exceeds the cash that will be paid outUsually positive in a healthy firmLiquidityAbility to convert to cash quickly without a significant loss in valueLiquid firms are less likely to experience financial distressBut liquid assets typically earn a lower returnTrade-off to find balance between liquid and illiquid assets2-66US Corporation Balance Sheet Table 2.12-77Market Value vs.Book ValueThe balance sheet provides the book value of the assets,liabilities,and equity.Market value is the price at which the assets,liabilities,or equity can actually be bought or sold.Market value and book value are often very different.Why?Which is more important to the decision-making process?2-88Example 2.2 Klingon CorporationKLINGON CORPORATIONBalance SheetsMarket Value versus Book ValueBookMarketBookMarketAssetsLiabilities and Shareholders EquityNWC$400$600 LTD$500$500NFA 700 1,000 SE6001,1001,1001,6001,1001,6002-99Income StatementThe income statement is more like a video of the firms operations for a specified period of time.You generally report revenues first and then deduct any expenses for the periodMatching principle GAAP says to show revenue when it accrues and match the expenses required to generate the revenue2-1010US Corporation Income Statement Table 2.22-1111Work the Web ExamplePublicly traded companies must file regular reports with the Securities and Exchange CommissionThese reports are usually filed electronically and can be searched at the SEC public site called EDGARClick on the web surfer,pick a company,and see what you can find!2-1212TaxesThe one thing we can rely on with taxes is that they are always changingMarginal vs.average tax ratesMarginal tax rate the percentage paid on the next dollar earnedAverage tax rate the tax bill/taxable incomeOther taxes2-1313Example:Marginal Vs.Average RatesSuppose your firm earns$4 million in taxable income.What is the firms tax liability?What is the average tax rate?What is the marginal tax rate?If you are considering a project that will increase the firms taxable income by$1 million,what tax rate should you use in your analysis?2-1414The Concept of Cash FlowCash flow is one of the most important pieces of information that a financial manager can derive from financial statementsThe statement of cash flows does not provide us with the same information that we are looking at hereWe will look at how cash is generated from utilizing assets and how it is paid to those that finance the purchase of the assets2-1515Cash Flow From AssetsCash Flow From Assets(CFFA)=Cash Flow to Creditors+Cash Flow to StockholdersCash Flow From Assets=Operating Cash Flow Net Capital Spending Changes in NWC2-1616Example:US Corporation Part IOCF(I/S)=EBIT+depreciation taxes=$547NCS(B/S and I/S)=ending net fixed assets beginning net fixed assets+depreciation=$130Changes in NWC(B/S)=ending NWC beginning NWC=$330CFFA=547 130 330=$872-1717Example:US Corporation Part IICF to Creditors(B/S and I/S)=interest paid net new borrowing=$24CF to Stockholders(B/S and I/S)=dividends paid net new equity raised=$63CFFA=24+63=$872-1818Cash Flow Summary-Table 2.52-1919Example:Balance Sheet and Income Statement InformationCurrent Accounts2009:CA=3625;CL=17872008:CA=3596;CL=2140Fixed Assets and Depreciation2009:NFA=2194;2008:NFA=2261Depreciation Expense=500Long-term Debt and Equity2009:LTD=538;Common stock&APIC=4622008:LTD=581;Common stock&APIC=372Income StatementEBIT=1014;Taxes=368Interest Expense=93;Dividends=2852-2020Example:Cash FlowsOCF=1,014+500 368=1,146NCS=2,194 2,261+500=433Changes in NWC=(3,625 1,787)(3,596 2,140)=382CFFA=1,146 433 382=331CF to Creditors=93 (538 581)=136CF to Stockholders=285 (462 372)=195CFFA=136+195=331The CF identity holds.2-2121Quick QuizWhat is the difference between book value and market value?Which should we use for decision-making purposes?What is the difference between accounting income and cash flow?Which do we need to use when making decisions?What is the difference between average and marginal tax rates?Which should we use when making financial decisions?How do we determine a firms cash flows?What are the equations,and where do we find the information?2-2222Ethics IssuesWhy is manipulation of financial statements not only unethical and illegal,but also bad for stockholders?2-2323Comprehensive ProblemCurrent Accounts2009:CA=4,400;CL=1,5002008:CA=3,500;CL=1,200Fixed Assets and Depreciation2009:NFA=3,400;2008:NFA=3,100Depreciation Expense=400Long-term Debt and Equity(R.E.not given)2009:LTD=4,000;Common stock&APIC=4002008:LTD=3,950;Common stock&APIC=400Income StatementEBIT=2,000;Taxes=300Interest Expense=350;Dividends=500Compute the CFFA2-2424End of Chapter2-2525