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chap3 - Chapter 3 Web Appendix 3A 1 FINANCIAL STATEMENTS...

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1 FINANCIAL STATEMENTS, CASH FLOWS, AND TAXES Chapter 3 & Web Appendix 3A
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2 Topic Overview Key Financial Statements Balance sheet Income statements Statement of retained earnings Statement of cash flows Accounting Income vs. Cash Flow Statement of Cash Flows Individual and Corporate Income Taxes
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The annual report Balance sheet – provides a snapshot of a firm’s financial position at one point in time. (Please review section 3.3) Income statement – summarizes a firm’s revenues and expenses over a given period of time. (Please review section 3.4) Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends. (Please review section 3.7) Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time. 3
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4 Homer & Son Balance Sheet: Assets 2007 2006 2007-2006 Assets Current  Assets 900 800 100 Net Fixed  Assets 1500 1300 200 Total Assets 2400 2100
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5 Homer & Son Balance Sheet: Liabilities Liabilities 2007 2006 2007-2006 Acct Pay 450 350 100 Accruals 200 150 50 Notes  Payable 150 150 Total CL 800 650 Long-term  Debt 600 600 Total Liab 1400 1250
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6 Homer & Son Balance Sheet: Equity and Total Liabilities and Equity 2007 2006 Total Liab 1400 1250 Common  Stock 700 700 Retained  Earnings 300 150 Total Equity 1000 850 Total Liab &  Equity 2400 2100
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2007 Homer & Son Income Statement Sales 3000 Cost of good sold 1800 Gross Profit 1200 SGA Expense 720 Depreciation 100 Operating Inc. (EBIT) 380 Interest Exp 80 EBT 300 Taxes (40%) 120 Net Income 180 7
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8 Some Balance Sheet Comments Net Working Capital = Current Assets – Current Liabilities Net Operating Working Capital = Current Assets – non-interest bearing current liabilities Assets (particularly Long-term) and Equity on Balance Sheet are Book (or historical-based) Values. Market Value of Assets and Equity (# of shares x market price/share) can be vastly different for a given firm. For AT&T: 12/31/2007 Book Value of Equity = $115.4 billion, 12/31/2007 Market Value= $251.2 billion
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Accounting Income vs. Cash Flow An Income Statement Sales Cost of Goods Sold Selling & Gen. Adm.
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