Chapter 2 Understanding Financial Statements, Taxes, and Cash Flows

Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows
Income Statement
SALES (revenue)-EXPENSES ( Cost of Goods Sold , Operating Expenses (marketing, administrative) ,
Financing Costs , Taxes )= PROFIT
SALES
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses
OPERATING INCOME (EBIT)
- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS
Total Assets =Outstanding Debt + Shareholders’ Equity
Assets
 Current Assets : assets that are relatively liquid, and are expected to be converted to cash within a year.
 Cash, marketable securities, accounts receivable, inventories, prepaid expenses.
 Fixed Assets : machinery and equipment, buildings, and land.
 Other Assets : any asset that is not a current asset or fixed asset.
Intangible assets , such as patents and copyrights.
Financing
 Debt Capital: financing provided by a creditor.