Financial Statements and Cash FlowFINC 3610 ‐ YostFinancial Statements and Cash Flow22Financial Statements• The Annual Report and Form 10‐K– Balance Sheet– Income Statement– Statement of Cash Flows– Statement of Stockholders’ Equity• EDGAR– www.sec.gov23The Balance Sheet• The Balance Sheet Identity:• Liquidity– In the Balance Sheet– Pros and Cons of Liquid Assets24Financial Statements and Cash FlowFINC 3610 ‐ YostThe Balance Sheet• Market Value vs. Book Value– What is market value?– What is book value?• Historical Cost– Where on the balance sheet can we find the true (market) value of the firm?– How do we find the true (market) value of total stockholders’ equity?– What is the goal of the firm?25The Income Statement•• The Bottom Line: • GAAP– The Timing of Cash Flows– The Matching Principle– Non‐Cash Items (e.g., depreciation)26The Statement of Cash Flows• Cash Flow From ___________ Activities• Cash Flow From ___________ Activities• Cash Flow From ___________ Activities27Financial Statements and Cash FlowFINC 3610 ‐ YostThe Statement of Cash Flows• Sources and Uses of Funds– Changes in Current Assets– Changes in Current Liabilities• Examples:–  Accounts Payable–  Inventory–  Accounts Receivable–  Accrued Expenses28Some things to remember…• Depreciation is not a cash flow.• Net income is not a cash flow.• Financial statements are backward looking, not forward looking.• The balance sheet shows book values, not market values.29Taxes(Table 2.3)Taxable Income Tax Rate$0 - $50,000 15%$50,001 - $75,000 25%$75,001 - $100,000 34%$100,001 – $335,000 39%$335,001 - $10,000,000 34%$10,000,001 - $15,000,000 35%$15,000,001 - $18,333,333 38%$18,333,334 + 35%30Financial Statements and Cash FlowFINC 3610 ‐ YostTaxes• If a corporation has $90,000 in taxable income, how much does it owe in taxes?• Average Tax Rate• Marginal Tax Rate31Suggested Problems• Concepts Review and Critical Thinking Questions– Chapter 2: 1 and 2• Questions and Problems:– Chapter 2: 5, 6, 7, 10, 17, and 18– Chapter 3: 9 and 1632Financial Statements and Cash FlowFINC 3610 ‐ Yost33Yostex CorporationBalance SheetDecember 31, 2013 and 2012(in $millions)Assets 2013 2012 Liabilities (Debt) and Stockholder's Equity 2013 2012Current Assets: Current Liabilities: Cash and Equivalents $140 $107 Accounts Payable $213 $197 Accounts Receivable 294 270 Notes Payable 50 53 Inventories 269 280 Accrued Expenses 223 205 Other 58 50 Total Current Liabilities $486 $455 Total Current Assets $761 $707Long‐Term Liabilities:Fixed ass ets: Deferred Taxes $117 $104 Property, Plant, Equipm ent $1,423 $1,274 Long‐Term Debt 471 458 Less Accumulated Depreciation (550) (460) Long‐Term Liabilities $558 $562 Net Pro perty, Plant, Econ comy 873 874 Intangible as sets and other 245 221 Stockholder's Equity: Total Fixed Assets $1,118 $1,035 Preferred Stock $39 $39 Common stock ($1 per value) 55 32 Capital surplus 347 327Total Assets $1,879 $1,742 Accum ulated Retained Earnings 390 347 Less Treasury Stock(26) (20) Total Equ ity $805 $725Total Liabilities and Stockholdr's Equ ity $1,897 $1,74234Total Operating Revenues $2,262Cos t of Goods Sold (1,655)Selling, General, and Administrative Expenses (327)Depreciation (90)Operating Income $190Other Income 29Earnings Before Interest and Taxes $219Interest Expense (49)Pretax Income $170Taxes (84) Current: $71 Deferred: 13Net Income $86 Retained Ear nings: $43 Dividends: $43(In $ millions)For Year Ended December 31, 2013Income StatementYostex CorporationFinancial Statements and Cash FlowFINC 3610 ‐ Yost35Cash Flow fr om Operating Activies Net Income $86 Depreciation 90 Deferred Taxes 13 Change in Assets and Liabilities Accounts R eceivable (24) Inv entories 11 Accounts Payable 16 Accrued Expense 18 Other (8)Cash Flow from Operating Activies $202Cash Flow fr om Investing Activ itesAcquisition of Fixed Assets ($198)Sale of Fixed Assets 25Cash Flow from Investing Activites ($173)Cash Flow fr om Financing Activ ities Change in Notes Payable ($3)Net Change in Long‐Term Debt 13Dividends (43)Repurchase of Stock (6)Proceeds from New Stock Issues 43Cash Flow from Financing Activities $4Total Change in Cash $33Yostex CorporationStatement of Cash FlowsFor Year Ended December 31, 2013(In $ Millions