Chapter_03_Presentation - 3 3 Working With Financial...

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Unformatted text preview: 3 3 Working With Financial Statements 3-2 Working with Financial Statements Working with Financial Statements Financial statement information plays an important part in many types of financial decisions. A main goal of accounting should be to report this information in a form useful for decision making. Unfortunately, that often does not happen. 3-3 Cash Flow and Financial Statements Cash Flow and Financial Statements Firms basically do two things: generate cash and spend cash. From Ch. 2: CF(Assets)=CF(Creditors) +CF(Owners) The activities that bring in cash are called sources of cash. The activities that involve spending cash are called uses of cash 3-4 Sources and Uses Sources and Uses Sources Cash inflow occurs when we sell something Decrease in asset account ( Sample B/S ) Accounts receivable, inventory, and net fixed assets Increase in liability or equity account Accounts payable, other current liabilities, common stock, retained earnings Uses Cash outflow occurs when we buy something Increase in asset account Cash and other current assets Decrease in liability or equity account Notes payable and long-term debt 3-5 Sample Balance Sheet Sample Balance Sheet 2003 2002 2003 2002 Cash 696 58 A/P 307 303 A/R 956 992 N/P 26 119 Inventory 301 361 Other CL 1,662 1,353 Other CA 303 264 Total CL 1,995 1,775 Total CA 2,256 1,675 LT Debt 843 1,091 Net FA 3,138 3,358 C/S 2,556 2,167 Total Assets 5,394 5,033 Total Liab. & Equity 5,394 5,033 Numbers in millions Note: LT Debt includes deferred taxes, accrued pension liabilities, a gain on a sale -leaseback and other non-current liabilities. These are non-interest accruing liabilities. This will explain why interest expense on the income statement is so low. 3-6 Sample Income Statement Sample Income Statement Revenues 5,000 Cost of Goods Sold 2,006 Expenses 1,740 Depreciation 116 EBIT 1,138 Interest Expense 7 Taxable Income 1,131 Taxes 442 Net Income 689 EPS 3.61 Dividends per share 1.08 Numbers in millions, except EPS & DPS 3-7...
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Chapter_03_Presentation - 3 3 Working With Financial...

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