Davies_Case

Davies_Case - Davies (Page 50) BOOK'S WAY (NOT OUR"S)...

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Unformatted text preview: Davies (Page 50) BOOK'S WAY (NOT OUR"S) Income Statement Sales Cost of Goods Sold Gross Profit Operating Expenses: Selling Expenses Gen. & Admin. Exp. Depreciation Exp. Total Operating Exp. Operating Income Interest Expense Earnings before Taxes Income Taxes Net Income 2010 $600 $460 $140 $20 $15 $30 $65 $75 $15 $60 $18 $42 Steps (page 64) Operating Activities Add depreciation to net income Net Income $42 Balance Sheet Assets Cash Accounts Receiva Inventory Other Current Ass Total Current Ass Gross Plant & Equ Less Accumulate Net Plant and Equ Total Assets Liabilities Accounts Payable Accrued Expense Short­Term Notes Total Current Liab Long­Term Debt Total Debt Common Shareho Common Stock­ Paid­In Capital Retained Earnin Total Common St Total Liabilities an Depreciation Subtract increases in A/R and inventory Increase in Inventory Increase in A/R Add increases in accounts payable Increase in A/P Cash flow from ops. $30 $72 ($33) ($5) $34 $1 $35 Investment Activities Subtract increases in Plant & Equipment Increase in Gross P&E ($39) Financing Activities Cash Inflows from Borrowing Decrease in Short­Term Notes Increase in Long­Term Debt Total Sale of Equity Change in par value Change in Paid­In Capital Total Less: Dividends paid to Shareholders Financing Cash Flows Change in Cash ($2) $11 $9 $1 $3 $4 $10 $3 Operating Activities Cash Flow from Operations $35 Investment Activities Increase in Gross Fixed Assets ($39) Financing Activities Cash Flow from Financing Change in Cash $3 ($1) ance Sheet 2009 2010 $21 $20 ccounts Receivable $31 $36 nventory $51 $84 ther Current Assets $3 $3 otal Current Assets $106 $143 ross Plant & Equipment $371 $410 ess Accumulated Depreciation ($85) ($115) et Plant and Equipment $286 $295 otal Assets $392 $438 iabilities ccounts Payable $41 ccrued Expenses $10 hort­Term Notes $14 otal Current Liabilities $65 ong­Term Debt $160 otal Debt $225 ommon Shareholders' Equity Common Stock­ par value $10 Paid­In Capital $72 Retained Earnings $85 otal Common Stareholders' Equity $167 otal Liabilities and Equity $392 Change ($1) $5 $33 $0 $37 $39 ($30) $9 $46 $42 $10 $12 $64 $171 $235 $1 $0 ($2) ($1) $11 $10 $11 $75 $117 $203 $438 $1 $3 $32 $36 $46 Davies (Page 50) THIS IS OUR WAY ("FREE CASH FLOWS") Income Statement 2010 Sales $600 Cost of Goods Sold $460 Gross Profit $140 Operating Expenses: Selling Expenses $20 Gen. & Admin. Exp. $15 Depreciation Exp. $30 Total Operating Exp. $65 Operating Income $75 Interest Expense $15 Earnings before Taxes $60 Income Taxes $18 Net Income $42 Balance Sheet Assets Cash Accounts Receivable Inventory Other Current Assets Total Current Assets Gross Plant & Equipment Less Accumulated Depreciation Net Plant and Equipment Total Assets Liabilities Accounts Payable Accrued Expenses Short­Term Notes Total Current Liabilities Long­Term Debt Total Debt Common Shareholders' Equity Common Stock­ par value Paid­In Capital Retained Earnings Total Common Stareholders' Eq Total Liabilities and Equity Davies Free Cash Flow From an Asset Perspective Step 1: Compute After-Tax Cash Flow From Operations Easier Way Net Income + Interest $42 $15 + Depreciation & amortization $30 After-Tax Cash Flow From Operations $87 Step 2: Change in Net Operating Working Capital Change in Current Assets Change in Cash Change in Accounts Receivable Change in Inventory Change in Other CA Change in Current Assets (1) 5 33 0 37 Change in Noninterest-Bearing Current Debt Change in Accounts Payable Change in Accrued Expenses Change in Current Liabilities Change in Net Operating Working Capital 1 0 1 (36) Step 3: Change in Long-Term Assets Purchase of Fixed Assets 39 Asset Free Cash Flows 12 Free Cash Flow from a Financing Perspective Interest (15) Sale of Common Equity 4 Borrow Long-Term Debt 11 Pay Short-Term Notes (2) Common Stock Dividends (1) (10) Financing Free Cash Flows (12) (1) Dividends = net income - change in retained earnings 42 -32 = 10 Free Cash Flows: "the amount of cash available from operations after the firm pays f operating working capital and fixed assets. This cash is available to distribut owners." (p. 61) "We will use free cash flows in later chapters to evaluate capital investment opportun "As we will see numerous times, the value of an investment is the present value of it "But for now we will learn about the statement of cash flows." (p. 63) The difference between the two methods is: Take cash flow from operations subtract increases in long­term assets add back and financial cash flows add any changes in net working capital not considered, i.e. cash prepaid exp will get "free cash flow". EE CASH FLOWS") 12/31/2009 iabilities ccounts Payable ccrued Expenses hort­Term Notes otal Current Liabilities ong­Term Debt otal Debt ommon Shareholders' Equity Common Stock­ par value Paid­In Capital Retained Earnings otal Common Stareholders' Equity otal Liabilities and Equity $20 $36 $84 $3 $143 $410 ($115) $295 $438 ($1) $5 $33 $0 $37 $39 ($30) $9 $46 $41 $10 $14 $65 $160 $225 $42 $10 $12 $64 $171 $235 $1 $0 ($2) ($1) $11 $10 $10 $72 $85 $167 $392 $11 $75 $117 $203 $438 $1 $3 $32 $36 $46 Method from Book Chapter 3 Plus Interest Expense Change in Cash Change $21 $31 $51 $3 $106 $371 ($85) $286 $392 ccounts Receivable nventory ther Current Assets otal Current Assets ross Plant & Equipment ess Accumulated Depreciation et Plant and Equipment otal Assets Cash flow from ops. 12/31/2010 Err:509 $15 $1 Increase in Gross P&E ($39) Free Cash Flow Err:509 Decrease (source/plus) Increase (use/negative) Increase (use/negative) No effect Increase (use/negative) Increase (source/positive) No effect Increase (source/positive) (36) Increase (use/negative) (39) Increase (use/negative) 12 Received Paid Received Received Paid Paid (12) Paid operations after the firm pays for the investments it has made in his cash is available to distribute to the firm's creditors and ate capital investment opportunities." (p.61) stment is the present value of its free cash flows." (p.62 ­ 63) h flows." (p. 63) onsidered, i.e. cash prepaid expensed, accrued expenses ...
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This note was uploaded on 09/30/2011 for the course FIN 350 taught by Professor Chen during the Spring '07 term at S.F. State.

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