mf - financial statements.pdf
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Managerial Finance
Hussain Al Awami, B.Sc. Pharm., M.Sc., MBA
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Financial Statements, CashFlow, and Taxes
Chapter III
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Learning Objectives
list the type of information found in acompanys annual report.
Distinguish the differences among
accounting profit, net cash flow andoperating cash flow.
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Financial statements AND Annualreport
Verbal section
Financial statements Balance sheet
Income statement
Statement of retained earnings
Statement of cash flow
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Which one is more important,
Financial statements or verbalsection?
VerbalSection
Financial
statements
Verbal
Section
Financialstatements
Verbal
Section
Financial
statements
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MicroDrive Inc. as an example
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Financial Statements
Balance sheet
Income statement
Statement of retained earnings
Statement of cash flows
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Balance sheet is changing indaily basis!
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Left & Right side
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Listed in order of Liquidity
Cash & equivalents
Is more liquid
Than short termInvestment
Which is moreLiquid than
Inventories
And so on
Accounts payable
Have to be paid
Before notesPayable which isTurn have to be
Paid before
AccrualsAnd so on
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Book value
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Assets
Current
Non-current
Current assets
Non-Current assets
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Assets
Cash
Cash equivalents
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Assets
Short term
investments
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Assets
Accounts receivable
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Assets
Inventories
FIFO Vs LIFO
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Assets
Non-current assets
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Liabilities And Equity
Accounts payable
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Liabilities And Equity
Notes payable
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Liabilities And Equity
Accruals
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Liabilities And Equity
Long term bonds
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Liabilities And Equity
Preferred stock
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Liabilities And Equity
Common stock
Retained earnings
Total equity
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Net sales
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EBITDA
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Depreciation & Amortization
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Net Income
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Statement of RetainedEarnings
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Net cash flow
Net cashflow Netincome Noncashrevenues Noncashcharges= - +
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Net cash flow
Net cashflow
Netincome
Noncashrevenues
Noncashcharges
= - +
Depreciation&
Amortization
Uncollectiblerevenues
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Net cash flow
Net cashflow
Netincome
Noncashrevenues
Noncashcharges
= - +
Depreciation&
Amortization
+
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Factors affecting cash position
Net income
Noncash
adjustment
Changes in
Working capital
Fixed assets Security transactions &
Dividend payment
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Modifying accounting data formanagerial decisions
Standard reportsmainly for outsiders
Modified reportsmainly for insiders
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Total assets
Operating
assets
Non operating
assets
Assets for businessoperation
Any thing more
OperatingCurrent assets
Operating longTerm assets
OperatingCurrent assets
Operating longTerm assets
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Working capital
Netoperating
Workingcapital
Operating
Currentassets
Operating
Currentliabilities= -
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Net
operatingWorkingcapital
Operating
Currentassets
Operating
Currentliabilities
= -
SuppliersWorkers
Tax authorities
Inventories
cash
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Effect of debt
Company A Company B
Effect of debt
NOPAT EBIT= (1- tax rate)
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Free Cash Flow
FCF NOPAT=Net investment
In operatingcapital
-
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Uses of FCF
Pay
InterestTo
debtholders
BuyMarketable
SecuritiesOr other
Nonoperating
assets
Repaydebtholders
Pay
DividendsTo
shareholders
Repurchase
StockFrom
shareholders
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MVA & EVA
Market value added Economic value added
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Market Value Added
MVAMarket
Value ofstock
=Equity capitalSupplied by
shareholders
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(shares outstanding) (stock price) Total common equity= -
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Economic Value Added
EVA NOPAT=
After tax dollarCost of capital
Used toSupport operations
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EBIT (1-tax rate) (total net operating capital) (WACC)= -
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Economic Value Added
It differ from accounting profit by includingcost of capital factor
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