table 3.1 h. j. boswell, inc. 301_spring2017/slides_s17/ch03... · table 3.1 h. j. boswell, inc....
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Table 3.1 H. J. Boswell, Inc.
Corporate TaxesA firm’s income tax liability is based on its taxable income and the tax rates on corporate income.
The Balance SheetThe balance sheet provides a snapshot of the firm’s financial position on a specific date. It is defined by the following equation:
Total Assets = Total Liabilities + Shareholders Equity
Shareholders Equity = Total Assets – Total Liabilites
Table 3.2 H. J. Boswell, Inc.
The Cash Flow StatementThe Cash Flow Statement is used by firms to explain changes in their cash balances over a period of time by identifying all of the sources and uses of cash for the period spanned by the statement.
Cash Flow Analysis SummarySources of Cash Uses of Cash
Decrease in an asset account
Increase in an asset account
Increase in a liability account
Decrease in a liability account
Increase in an owner’s equity account
Decrease in an owners’ equity account
Table 3-3 H. J. Boswell, Inc., Balance Sheets and Balance Sheet Changes
Table 3-4 H. J. Boswell, Inc.
9Table 3.4 Corrected
Statement of Cash Flows for the year ending December 31, 2013
Ending Cash Balance for 2012 $94.50
Operating Activities
Net IncomeIncrease in Accounts ReceivableIncrease in InventoryDepreciation ExpenseIncrease in Accounts Payable
Cash Flow From Operating Activities
$204.75(22.50)
(148.50)145.00
4.50173.25
Investing Activities
Purchases of Plant and EquipmentCash From Investing Activities
(175.50)175.50
Financing Activities
Decrease in short-term notesIncrease in long-term debtCash dividend paid to shareholders
Cash Flow from Financing Activities
(9.00)51.75
(45.00)(2.25)
Increase (decrease) in cash (4.50)
Ending Cash Balance 90.00
Quality of Earnings: Evaluating Cash Flow from OperationsSince reported earnings can sometimes be misleading, we can combine information from the firm’s income statement and the statement of cash flows to evaluate the quality of firm’s reported earnings.
Sustainable Capital Expenditures: Evaluating Investment ActivitiesThis ratio calculates the extent to which the firm’s operating cash flows can pay for capital expenditures. Higher ratio will mean less dependence on capital markets for financing.