Formulas

Formulas - Chapter Two Financial Statements Taxes and Cash Flow Income Statement(Net Income is final result o Net Sales COGS Depreciation = EBIT

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Chapter Two – Financial Statements, Taxes, and Cash Flow Income Statement (Net Income is final result) o Net Sales – COGS – Depreciation = EBIT; EBIT – Interest = Taxable Income; Net Income = Taxable Income – Taxes; Net Income – Dividends = Addition to Retained Earnings Balance Sheet ASSETS = LIABILITIES + SHAREHOLDER’S EQUITY (Balance sheet identity or equation) NET WORKING CAPITAL = Current Assets – Current Liabilities INCOME = REVENUES – EXPENSES EPS = Net Income / Total Shares Outstanding DPS = Total Dividends / Total Shares Outstanding Average Tax Rate = Total Taxes Paid / Total Taxable Income CASH FLOW IDENTITY: Cash Flow From Assets = Cash Flow to Creditors + Cash Flow to Stockholders Operating Cash Flow = EBIT + Depreciation - Taxes Net Capital Spending = Ending Net Fixed Assets – Beginning Net Fixed Assets + Depreciation Change in Net Working Capital = Ending NWC (2009) – Beginning NWC (2009) Cash Flow from Assets = Operating Cash Flow – Net Capital Spending – Change in Net Working Capital Cash Flow to Creditors = Interest Paid (or Cash Flow From Assets) – Net New Borrowing Cash Flow to Stockholders = Dividends Paid – Net New Equity Raised Change in Net Fixed Assets = Ending N/F/A – Beginning N/F/A Chapter Three – Working with Financial Statements CASH FLOW IDENTITY: Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Owners Use of Cash: Increase in a left-side (Asset) account or a Decrease in a right-side (Liability) account o Increase in Accounts Receivable, Increase in Inventory, Decrease in Notes Payable, Decrease in Long-Term Debt, Net Fixed Assets Acquisitions Source of Cash: Decrease in a left-side (Asset) account or an Increase in a right- side (Liability) account o Increase in Accounts Payable, Increase in Common Stock, Increase in Retained Earnings Net Addition / Subtraction to/from Cash = The difference between sources of cash and uses of cash Net Addition / Subtraction to/from Retained Earnings = The difference between net income and the dividends Common-size statement: Balance sheet items are shown as % of assets & Income Statement items are shown as % of sales Common-size statement of Cash Flows: Shown as a % of total sources and % of total uses
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Common-base Year Amount = X / Base Year Amount Short-term Solvency or Liquidity Ratios (intended to provide information about the firm’s liquidity ~ liquidity measures) Current Ratio = Current Assets / Current Liabilities (A high Current Ratio indicates liquidity) o Quick (Acid-Test) Ratio = Current Assets – Inventory / Current Liabilities Inventory is often the least liquid current asset o Cash Ratio = Cash / Current Liabilities (a very short-term creditor may be interested in this number) o Net Working Capital to Total Assets = Net Working Capital / Total Assets (a low
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Formulas - Chapter Two Financial Statements Taxes and Cash Flow Income Statement(Net Income is final result o Net Sales COGS Depreciation = EBIT

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