B- Fncl Stmnts, Ratios

B- Fncl Stmnts, Ratios - CorporateFinance...

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Click to edit Master subtitle style Corporate Finance USC Dr. Bemis
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n Know how to decipher a firm’s financial  statements using financial ratios n Know the difference between average  and marginal tax rates n Know the difference between book  value and market value
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Income Statement n Device to measure the profitability of a  firm over a period of time n It covers a defined period of time n It is presented in a stair-step or progressive  fashion to examine profit or loss after each  type of expense item is deducted
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Income Statement n Revenues          COGS = Gross profit on sales Administrative expense Depreciation expense = EBIT Interest expense = Taxable income Taxes =  Net income available for dividends Dividends
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Income Statement 
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Prepare in good form an income  statement for Sara Inc.  n Sales                                                                           $  800,000 n Shares outstanding                                                       100,000 n Cost of goods sold                                                         300,000 n Interest expense                                                             20,000 n Selling and administrative expense                              40,000 n Depreciation expense                                                     30,000 n Preferred stock dividends                                              80,000 n Taxes                                                                              110,000
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Return to Capital n Three primary sources of capital:  n Bondholders n Preferred stockholders n Common stockholders n Earnings per share n Interpreted in terms of number of outstanding  shares n May be paid out in dividends or retained by  company for subsequent reinvestment n Statement of retained earnings 
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Balance Sheet n Indicates what the firm owns and how  these assets are financed in the form of  liabilities or ownership interest n Delineates the firm’s holdings and  obligations n Items are stated on an original cost basis  rather than at current market value
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Balance Sheet Items n Liquidity: Asset accounts are listed in order of liquidity n Current assets n Items that can be converted to cash within 12 months n Marketable securities n Temporary investments of excess cash n Accounts receivable 
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B- Fncl Stmnts, Ratios - CorporateFinance...

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