financial statements and cash flow key financial statements balance sheet income statement ...

Financial Statements and Cash Flow

Key Financial Statements Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows

Free Cash Flow

Chapter 3

3-1

The Annual Report

Verbal statement

Balance sheet – provides a snapshot of a firm’s financial position at one point in time.

Income statement – summarizes a firm’s revenues and expenses over a given period of time.

Statement of stockholders’ equity – shows how much of the firm’s earnings were retained, rather than paid out as dividends.

Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.

3-2

Balance Sheet

Assets = Liabilities + stockholders’ equity

Tot. Assets = Cur. Assets + Fixed Assets

Tot. Liab.=Cur. Liab. + LT Debt

Net Working Capital = Current assets – (Payables + Accruals)

3-3

Income Statement

Operating income (EBIT) = Sales revenues – operating costs

EPS = NI / common shares outstanding

DPS = Div. paid / common shares outstanding

3-4

Statement of cash flows

Operating Activities

Long term investing activities

Financing Activities

3-5

Statement of stockholders equity

Retained earnings represents a claim against assets

Retained earnings as reported on the balance sheet do not represent cash and are not available for dividends or anything else

3-6

The free cash flow (FCF)

NWC

esexpenditur

Capital

onamortizati

and Depr. T)EBIT(1 FCF

3-7

Is negative free cash flow always a bad sign?

FCF is the amount of cash that could be withdrawn without harming a firm’s ability to operate and to produce future cash flows

End of Ch. Problems

(3-1) Pg. 76

(3-2) Pg. 76

(3-6) Pg. 76

(3-7) (a & b only) Pg.76-77

3-8