CHAPTER 10
Statement of Cash Flows
Statement of Cash Flows
Reports all cash receipt and cash payment during a
period of time
Another way to present the changes to balance sheet
Inflows (Decrease in asset account, increase in liability and equity
accoun
General Time Value of Money
Principles
Why Managers Need to
Understand TVM
Decisions have nancial impact over long periods
of ?me
Cri?cal to understand the nancial impact of
decisions
Develop a intui?ve sense of the rela?onship
between value,
MBA 505 Financial Management
Dr. Daniel E. Fox, LPA, CPA
Jurist Doctorate & Licensed Practicing
Attorney
Certified Public Accountant
Associate Professor of Law, Ashland
University
Teach undergraduate and graduate courses
Co-Chair of the Marketing, F
F I N A N C I A L S T AT E M E N T S
AUDITED FINANCIAL STATEMENTS AND NOTES
Statement of Earnings
132
Consolidated Statement of Comprehensive Income (Loss)
134
Consolidated Statement of Changes in Shareowners Equity
135
Statement of Financial Position
136
Chapter 2 Questions
Page 43, Question 1 Solution
Balance Sheet
CA
$ 5,300
CL
$ 4,600
NFA
24,900
LTD
10,300
OE
?
TA
$30,200
TL & OE
$30,200
We know that total liabilities and owners equity (TL &
OE) must equal total assets of $30,200. We also know that
TL
MBA 505 Financial Management
Dr. Daniel E. Fox, LPA, CPA
Jurist Doctorate & Licensed Practicing Attorney
Certified Public Accountant
Assistant Professor of Law, Ashland University
MBA 506, MBA 540, MBA 505, MBA 511
BUS 401, BUS 245, BUS 445
Researc
Chapter 2 Lecture
Key Concepts and Skills
Know the difference between book
value and market value
Know the difference between
accounting income and cash flow
Know the difference between average
and marginal tax rates
Know how to determine a firms cas
Time Value of Money
Definition of Terms
N = number of periods
I/Y = period interest rate
PV = present value
PMT= payment each period
FV = future value
2
Time Line
N = Periods of Time
0_1_2_3_4_5
PV
FV
I= Interest Rate
3
Excel Worksheet
Open the Time V
6
Discounted Cash Flow Valuation
Present Value of Unequal Cash Flows (NPV)
Assume the following cash flows and a 10%
return. What is the present value.
0_ _1_ _2_ _3
200
300
500
N
1
I
10
PV 181.82
PMT 0
FV
200
2
10
247.93
0
300
3
10
375.66
0
500
6-2
Pres
Chapter 7
Bond Valuation and Interest Rates
7-1
Bond Definitions
Bond - A debt instrument issued for a period of
more than one year with the purpose of raising
capital by borrowing. The Federal government,
states, cities, corporations, and many other
typ
Capital Purchase Example
INFORMATION OLD MACHINE:
Original Purchase Price
Original Life
Remaining Life
Straight line depreciation in use
Salvage Value
Current Fair Market Value
$ 650,000.00
15 YEARS
5 YEARS
$ 50,000.00
$ 300,000.00
INFORMATION NEW MACHINE
Bond Problem Worksheet
Bond Information (On the face of the bond)
Par Value
_ (Normally $1,000)
Coupon Rate
_ (Nominal Rate)
*Payments
_ (Annual, Semi, Quarterly)
Maturity Date
_ (Date Bond Matures)
Callable Bond?
_ (Could have a date the bond can be call
Time Value Worksheet
INPUT DATA IN THE YELLOW CELLS
ORDINARY ANNUITY - PAYMENT AT END
Present Value (PV) Calculation
N=
80.00
I=
3.0000%
PV=
($93,977.10)
PMT=
FV=
1,000,000.00
ANNUITY DUE - PAYMENT AT BEGINNING
Present Value (PV) Calculation
N=
80.00
I=
6
HOW DO YOU DEPRECIATE AN ASSET?
Step #1 - Determine the cost of the assets.
The actual invoiced price
+X
Shipping & Handling
+X
Installation Costs
+X
Asset Cost
+X
Step # 2 - Determine the life of the asset.
Particular to the use you put it to
Manufacture
(1)what is rapid refund?
(2)you have been investing $120 a month for the last 15years .today your investment account is worth
$47,341.19.what is your average annual rate of return on your investments? While you may calculate a
monthly average return.what
Toni adds $3000 to her savings on the first day of each year. Tim adds $3000 to his savings on the last day
of each year .They month earn a 9 percent rate of return. What is the difference in their savings account
balances at the end of thirty ye
(3)mr mi
Bonds
CHARACTERISTICS AND VALUATION
Interest rate
Interest rate: i=rf +risk premiums
Risk premiums
Default risk premium
Liquidity risk premium
Maturity risk premium
Bonds
A bond is a long term contract between a borrower and lenders where the borrower
Financial statements
Balance Sheet
FS of a corporation
Balance sheet
Income statement
Statement of cash flows
Notes: accounting policy and disclosures of
commitments and contingencies
10-k report
Management responsibilities on financial
statements
A
Financial Statement
Analysis
Causal Ratios
Causes of financial
problems
External causes (out of the control of a
company)
Internal causes (a companys actions or
inactions)
1. Fixed assets to net worth
A measure of the extent to which the owners
capital
Financial statements
Income Statement
Income Statement
provides information about the profitability
of a firm over a period of time (Statement of
Earnings)
NI = Rev. + Gains Exp.-losses
Multiple step vs Single step
Income Statement
Sustainable earning a
Financial Statement
Analysis
Causal Ratios (Part 2)
3. Inventory Turnover
Net sales/Inventory (or COGS/Inventory)
A measure of the firms inventory turnover
and its merchandising efficiency
Problem
Too large: pass up sales and lose customers
Too small:
Effect Ratios
Part II: Leverage Measures
Leverage
Leverage magnifies the bottom line
Debt ratio Risk
Leverage measures
Measuring the amount of debt
Measuring solvency
Measuring the amount of debt
Determine the eligibility of new loans and
borrowing rate
Measure of overall
financial health
Z-SCORE
Z-score (Altmans bankruptcy
Prediction Formula)
Z = 0.012X1 +0.014X2+0.033X3 + 0.006X4 +0.999X5
X1=WC/TA
X2=RE/TA
X3=EBIT/TA
X4=TE/TD (note: TE is the market value of equity, and TD is the book value of debt)
X5
Effect Ratios
Part 3: Profitability Measures
Profitable measures
Residual income: economic benefits
= EBIT (1-T) (K*I)
K: cost of capital or required rate of return
I: fixed assets + net working capital
T: Marginal tax rate
Think working capital as a
Bonds
CHARACTERISTICS AND VALUATION
Bond features (characteristics)
Secured bonds: bonds backed up by the value of specific assets, e.g. mortgage bonds
Debenture: unsecured bonds with a higher interest rate
Subordinated debenture: Lower in priority than s
Self-Interests & The
Agency Problem
RECAP: What Do We Know
So Far?
Human nature, in general, can be best
described by the REMM model:
We are resourceful, evaluative, and seek to
enjoy the highest level of value possible
(I.e., we are utilitiy maximizers
Chapter 1
Introduction
1-1
Chapter
ChapterOutline
Outline
1-2
Corporate Finance and the
Financial Manager
Forms of Business Organization
The Goal of Financial Management
The Agency Problem and Control
of the Corporation
Financial Markets and the
What is f
The Economist
Consumers often struggle to realise, for example, that a 50% increase in quantity is the same
as a 33% discount in price. The).r overwhelmingly assume the former is better value. In an
experiment, the researchers sold 73% more hand lotion wh
The Economist
differing prices, to see which web browsers happened to be favoured by shoppers least
concerned about cost, former executives say. The resulting backlash Prompted it to reind
those who paid more, and Amazon now declines to discuss its pricin
calibre
509 53:
seleder 5e1ected lines
Bring a calculator with you
WHEN retailers want to entice custo1ners to buy a particular product, they typically offer it
at a discount. According to a new study to be published in the Ioumai ofMarketing, they are
F E BRUARY 8, 2016
Now
can
we stop
talking
about
my
body?
What Barbies
new shape
says about
American
beauty
By Eliana
Dockterman
time.com
Just because you dont see it,
doesnt mean it isnt there.
Introducing the newly redesigned Volkswagen Passat with Blin
Modeling Fixed Rate MBS Prepayments
ABSTRACT
December, 2005
The Beyondbond Prepayment Model is a dynamic econometric model that applies
economic theory to analyze mortgagors prepayment behaviors and then fits them using
historical US residential prepaymen