Financial Statements and Cash Flow

Key Financial Statements Balance Sheet Income Statement Statement of Stockholders’ Equity Statement of Cash Flows

Free Cash Flow

Chapter 3

3-1

The Annual Report

Verbal statement

Balance sheet – provides a snapshot of a firm’s financial position at one point in time.

Income statement – summarizes a firm’s revenues and expenses over a given period of time.

Statement of stockholders’ equity – shows how much of the firm’s earnings were retained, rather than paid out as dividends.

Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.

3-2

Balance Sheet

Assets = Liabilities + stockholders’ equity

Tot. Assets = Cur. Assets + Fixed Assets

Tot. Liab.=Cur. Liab. + LT Debt

Net Working Capital = Current assets – (Payables + Accruals)

3-3

Income Statement

Operating income (EBIT) = Sales revenues – operating costs

EPS = NI / common shares outstanding

DPS = Div. paid / common shares outstanding

3-4

Statement of cash flows

Operating Activities

Long term investing activities

Financing Activities

3-5

Statement of stockholders equity

Retained earnings represents a claim against assets

Retained earnings as reported on the balance sheet do not represent cash and are not available for dividends or anything else

3-6

The free cash flow (FCF)

NWC

esexpenditur

Capital

onamortizati

and Depr. T)EBIT(1 FCF

3-7

Is negative free cash flow always a bad sign?

FCF is the amount of cash that could be withdrawn without harming a firm’s ability to operate and to produce future cash flows

End of Ch. Problems

(3-1) Pg. 76

(3-2) Pg. 76

(3-6) Pg. 76

(3-7) (a & b only) Pg.76-77

3-8