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MGMT310_lecture3

# MGMT310_lecture3 - Lecture 3 Lecture 3 Announcement Formula...

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Lecture 3 Announcement: Formula sheet is up on Katalyst! Last time we discussed… Balance sheet Income statement Cash flows CF from assets CF to creditors CF to stockholders CF Identity : CF from assets = CF to creditors + CF to stockholders Net income (NI) is not that same as actual cash flow !!

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Problem 2.19 (modified) During 2009, Raines Umbrella Corp. had sales of \$730,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were \$580,000, \$105,000, and \$135,000, respectively. In addition, the company had an interest expense of \$75,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.) a) What is Raines’ net income for 2009? b) What is its operating cash flow ? In addition, let’s say that from 2008 to 2009, Raines’ net fixed assets increased by \$50 000 its current assets did not change and its current increased by \$50,000, its current assets did not change, and its current liabilities increased by \$5,000. If net new borrowing was \$15,000, what was the cash flow to shareholders in 2009?
Standardized financial statements How can we make informative comparisons? Suppose Firm A has net income of \$5 million and Firm B has net income of \$1 million. Can we tell which firm is doing “better”? Common size E.g.: scale balance sheet items by total assets, scale income statement items by total sales Common base year Express each item relative to a particular base year Combined common size and base year

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Ratio analysis Facilitates interpreting different pieces of financial information Use to describe firm performance along a series of dimensions Ratio categories (table 3.8, page 65) I. Short term solvency / liquidity ratios II. Long term solvency / financial leverage ratios III. Asset management / turnover ratios IV. Profitability ratios V M k t l ti V. Market value ratios
Considerations when using financial ratios What aspect of the firm or its operations are we attempting to analyze?

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MGMT310_lecture3 - Lecture 3 Lecture 3 Announcement Formula...

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