Determine the book value per share \u00c6 common stock equity shares of common stock

Determine the book value per share æ common stock

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3.Determine the book value per share Æ
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Stuvia - Koop en Verkoop de Beste SamenvattingenAdditional information: The cash flow statement, or statement of cash flows, measures the sources of a company's cash and its uses of cash over a specific time period. The income statement, or statement of financial performance, measures a company's financial performance, such as revenues, expenses, profits or losses over a specific time period. A cash flow statement shows exactly how much money a company has received and how much it has spent, traditionally over a period of one month. It captures the current operating results and changes on the balance sheet, such as increases or decreases in accounts receivable or accounts payable, and does not include noncash accounting such as depreciation and amortization. A cash flow statement is used to determine the short-term viability and liquidity of a company, specifically how well it is positioned to pay its bills and vendors. An income statement is the most common financial statement and shows a company's revenue; total expenses, including noncash accounting such as depreciation; and profit or loss, traditionally over a period of one month. An income statement is used to determine the financial performance of a company, specifically how much revenue it made, how many expenses it paid, and the resulting profit or loss from the revenue and expenses. The cash flow statement is linked to the income statement by net profit or net burn. The profit or burn on the income statement then is used to calculate cash flow from operations. This is referred to as the indirect method. The direct method can also be used to prepare the cash flow statement, where the money received is subtracted from the money spent to calculate net cash flow. Chapter 13 Statement of Cash flows Usefulness of the Statement of Cash Flows 1. The entity s ability to generate future cash flows 2. The entity s ability to pay dividends and meet obligations 3. The reasons for the difference between net income and net cash provided used by operating activities a. Net income provides information on the success or failure of a business. However, it requires estimates. b. Cash is a reliable assessment criteria for the reliability of the income number. 4. The cash investing and financing transactions during the period a. Better understanding why assets and liabilities are changed Classification of Cash Flows 1. Operating activities a. Include the cash effects of transactions that create revenues and expenses. They thus enter into the determination of net income. b. Cash provided by company operations. c. Income statement items. 2. Investing activities a. Include acquiring and disposing of investments and property, plant, and equipment, and lending money and collecting loans. b. Cash flows resulting from changes in investments and long-term asset items. 3. Financing activities Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen a. Include obtaining cash from issuing debt and repaying the amounts borrowed, and obtaining cash from stockholders, repurchasing shares, and paying dividends. b. Cash flows resulting from changes in long-term liability and stockholders equity items. Companies do not report in the body of the statement of cash flows significant financing and investing activities that do not affect cash. Sometimes reported at a separate schedule or in a supplementary schedule. Format: Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen For the cash flow, the company adjusts the effects of the use of accrual accounting to determine cash flows. The information can come from 3 sources: - Comparative balance sheets o Information in the comparative balance sheets indicates the amount of the changes in assets, liabilities, and stockholders equities from the beginning to the end of the period. - Current income statement o Information in this statement helps determine the amount of net cash provided or used by operating activities during the period. - Additional information o Such information includes transaction data that are needed to determine how cash was provided or used during the period. Steps in preparing the statement of cash flows Indirect and direct method: - Indirect method: o Adjusts net income for items that do not affect cash. o Advantages: Easier and less costly to prepare It focuses on the differences between net income and net cash flow from operating activities. - Direct method: Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen o Operating cash receipts and payments. o It is prepared by adjusting each item in the income statement from the accrual basis to cash basis. Indirect method: Step 1) Determine net cash provided/used by operating activities by converting net income from an accrual basis to a cash basis. Depreciation expense: Depreciation expense is a noncash charge, it reduces net income but not cash. Also, amortization of intangible assets, depletion expense, and bad debt expense. Loss on disposal of equipment: Companies eliminate from net income all gains and losses related to the disposal of plant assets, to arrive at net cash provided by operating activities. In the case of either a gain or a loss, companies report as a source of cash in the investing activities section of the statement of cash flows the actual amount of cash received from the sale. Example: - Book value 7.000 and cash received for this 4.000 = -3.000 loss on plant. So, add 3.000 and then you have the net cash again Changes to noncash current asset: Æ Deduct from net income increases in current asset accounts, Æ Add to net income decreases in current asset accounts To arrive at net cash provided by operating activities. Accounts receivable When the Accounts Receivable balance increases, cash receipts are lower than sales revenue earned under the accrual basis. Therefore, the company deducts from net income the amount of the increase in accounts receivable, to arrive at net cash provided by operating activities. Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen When the accounts receivable decrease, cash income is higher than sales revenue. Inventory The change in the Inventory account reflects the difference between the amount of inventory purchased and the amount sold. Æ the company deducts inventory increase from net income Æ the company adds inventory decrease from net income Prepaid expenses Æ increase of prepaid expenses, means that cash paid for expenses is higher than expenses reported on an accrual basis. The company has made cash payments in the current period but will not charge expense to income until future period. Therefore, deduct the increase in prepaid expenses. Æ add the decrease in prepaid expenses Changes in current liabilities Æ increase in current liability, add to net income Æ decreases in current liability accounts, ded Changes in accounts payable Æ add an increase in accounts payable to net income Æ reduce net income with the decrease in accounts payable The required adjustments of the net income are: 1. Noncash charges such as depreciation and amortization 2. Gains and losses on the disposal of plant assets 3. Changes in noncash current asset and current liability accounts Step 2) Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Analyze changes in noncurrent asset and liability accounts and record as investing and financing activities, or as noncash investing and financing activities. Reatined earnings are explained by net income and dividends. The company adjusts net income to net cash provided by operating activities in the operating activities section. Payment of the dividends is a cash outflow that the compay reports as a financing activity. Common stock Æ an increase means cash inflow In investing and financing activities, positive numbers indicate cash inflows, and negative numbers indicate cash outflows (payments) Step 3) COMPARE THE NET CHANGE IN CASH ON THE STATEMENT OF CASH FLOWS WITH THE CHANGE IN THE CASH ACCOUNT REPORTED ON THE BALANCE SHEET TO MAKE SURE THE AMOUNTS AGREE - Free cash flow = the net cash provided by operating activities after adjustment for capital expenditures and dividends. Net cash provided by operating activities fails to take into account that a company must invest in new fixed assets and companies must maintain dividends at current levels to satisfy investors. The measurement of free cash flow provides additional insight regarding a company s cash-generating ability. Free cash flow = net cash investement in fixed asset - dividend Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Direct method cash flow Step 1: Operating Activities DETERMINE NET CASH PROVIDED/USED BY OPERATING ACTIVITIES BY CONVERTING NET INCOME FROM AN ACCRUAL BASIS TO A CASH BASIS Cash receipts from customers (Direct method) Cash payments to so suppliers (Direct method) Cash payments for operating expenses (Direct method) Cash payments for Income taxes (Direct method) Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen This leads to Step 2: Investing and Financing Activities ANALYZE CHANGES IN NONCURRENT ASSET AND LIABILITY ACCOUNTS AND RECORD AS INVESTING AND FINANCING ACTIVITIES, OR DISCLOSE AS NONCASH TRANSACTIONS Step 3: Net Change in Cash COMPARE THE NET CHANGE IN CASH ON THE STATEMENT OF CASH FLOWS WITH THE CHANGE IN THE CASH ACCOUNT REPORTED ON THE BALANCE SHEET TO MAKE SURE THE AMOUNTS AGREE Operating activities include the production, sales, and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials , building inventory , advertising, and shipping the product. Investing activities include purchases or sales of an asset (assets can be land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, payments related to mergers and acquisitions , and dividends received. Financing activities include the inflow of cash from investors, as well as the outflow of cash to shareholders as dividends as the company generates income . Other activities which impact the long-term liabilities and equity of the company are also listed in the financing activities. Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Chapter 15 Managerial accounting Managerial accounting provides economic and financial information for managers and other internal users. Difference between financial and managerial accounting. Managers activities and responsibilities can be classified into three broad functions: 1. Planning a. Requires managers to look ahead and to establish objectives. b. A key objective of management is to add value to the business. i. Value is usually measured by the price of the company s stock and by the potential selling price of the company. 2. Directing a. Coordinating a company s diverse activities and human resources to produce a smooth-running operation. b. Related to implementing planned objectives and providing necessary incentives to motivate employees. 3. Controlling a. The process of keeping the company s activities ont rack. b. Managers determine whether planned oals are met. Most companies prepare organization charts to show the interrelationships of activities and the delegation of authority and responsibility within the company. Typical organization chart: Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen - Stockholders own the corporation and manage indirectly through a board of directors. - The board of directors formulates the operating policies for the company or organization and selects officers. - Chief executive officer (CEO) and president = execute policy and perform daily management functions. - The layer below that: directly involved in the company s primary revenue-generating operating activities. - Chief financial officer (CFO) = responsible for all te accounting and finance issues the company faces. - Treasurer and controller support the CFO. o Controller maintains the accounting records, ensures an adequate system of internal control and prepares financial statements, tax returns, and internal reports. o Treasurer has custody of the corporation s funds and is responsible for maintain the company s cash position. Various cost categories - Manufacturing costs = consists of activities and processes that convert raw materials into finished goods. o Direct materials = raw materials that can be physically and directly associated with the finished product during the manufacturing process. o Direct labour = the work of factory employees that can be physically and directly associated with converting raw materials into finished goods. o Manufacturing overhead = costs that are indirectly associated with the manufacture of the finished product. Indirect materials = raw materials that cannot be easily associated with the finished product. Indirect labour Depreciation Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Taxes They do not physically become part of the finished product These 2 are impractical to trace to the finished product because their physical association with the finished product is too small in terms of cost Product vs period costs u Product costs = necessary and integral part of producing the finished product. Companies record these costs, when incurred, as inventory. These costs become expenses when the company sells the finished goods. u Period costs = costs that are matched with the revenue of a specific time period rather than included as part of the cost of a salable product. Also called nonmanufacturing costs. o E.g. sales commission, advertising cost, cost of shipping - Total manufacturing costs = sum of product costs incurred in the current period - Total costs of work in process = the cost of the beginning work in process + the total manufacturing costs for the current period - Cost of goods manufactured = Total manufacturing costs total costs of work in process Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Example Finished goods inventory is to a manufactuer what inventory is to a merchandiser. Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen The difference on the balance sheet The value chain = all business processes associated with providing a product or performing a service. For a manufacturer the value chain looks like this: - Just-in-time (JIT) inventory methods o No excess inventory on hand - Total quality management (TQM) o Reduces defects in finished products - Enterprise resource planning (ERP) system o Provide a comprehensive, centralized, integrated source of information to manage all major business processes - Activity based costing o Allocates overhead based on each product s use of particular activities in making the product. Æ more accurate product costing Corporate social responsibility = a company s efforts to employ sustainable business practices with regard to its employees, society and the environment. Sometimes referred to as the triple bottom line of people, planet, and profit. Chapter 19 Cost volume profit Cost behaviour analysis = the study of how specific costs respons to changes in the level of business activity. The starting point in this analysis is measuring the key business activities. Activity levels maybe expressed in different measurement bases. Changes in the level or volume of activity should be correlated with changes in costs. The activity index = identifies the activity that causes changes in the behaviour of costs. Æ With an appropriate activity index, companies can classify the behaviour of costs in response to changes in activity levels into three categories: variable, fixed, or mixed. Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Variable costs = costs that vary in total directly and proportionately with changes in the activity elvel. A variable cost is a cost that remains the same per unit at every level of activity. Variable costs and production increase or decrease with the same percentage. Fixed costs = costs that remain the same in total regardless of changes in the activity level. Fixed costs per unit vary inversely with activity: as volume increases, unit cost declines, and vice versa. On a per unit basis, the cost will decline as activity increases. Assumption that costs are linear. If a relationship is linear, then changes in the activity index will result in a direct proportional change in the variable cost. This is often not realistic, in the real world it often looks like this: Relevant range = the range over which a company expects to operate during a year. Gedownload door: stephankroon16 | [email protected] Dit document is auteursrechtelijk beschermd, het verspreiden van dit document is strafbaar.
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Stuvia - Koop en Verkoop de Beste Samenvattingen Mixed costs = costs that contain both a variable- and a fixed-cost element. They change in total but not proportionately with changes in the activity level. In this case, the fixed-cost element is the cost of having the service available. The variable cost element is the cost of actually using the service. For purposes of cost-volume-profit analysis, mixed costs must be classified into their fixed and variable elements . The usual approach is to: 1. Collect data on the behaviour of the mixed costs at various levels of activity. 2. Analysts then identify the fixed- and variable-cost components. 3. Companies use various types of analysis. One type of analysis, called the high-low method , is discussed next. The high-low method
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