FIN 311 1st Edition Lecture 3 Outline of Last Lecture I. Balance Sheeta. Assetsb. Goodwill on the Balance Sheetc. Liabilitiesd. Owners’ EquityOutline of Current Lecture I. Income StatementII. Statement of Retained Earnings/Statement of Shareholder’s EquityIII. Statement of Cash Flowsi. Cash flow from operating activitiesii. Cash flow from investing activities:iii. Cash flow from financing activities:IV. Statement of Comprehensive IncomeV. TaxesCurrent LectureI. Income Statement:- Recorded overa period of time- General: Sales -Costs -Depreciation The more you use a fixed asset, its value decreases overtime EBIT Earnings Before Interest and Taxes -Int Interest Expenses EBT Earnings Before Taxes -T Taxes NT Net Income Either Paid out as dividends Additions to retained earnings to shareholders II. Statement of Retained Earnings/Statement of Shareholder’s Equity- Provides detail as to why total shareholders’ equity on the Balance Sheet has changed- Net Income = Dividends paid + Additions to retained earning- Retention Ratio = Additions to retained earningsThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Net Income- When dividends are equal to zero, Retention Ratio is 100%III. Statement of Cash Flows- Explains why cash on the Balance Sheet has changedi. Cash flow from operating activities: Day-to-day running the business. Working capital decisions.ii. Cash flow from investing activities: Long term equipments (assets). Capital budgeting decisions.iii. Cash flow from financing activities: Raising capital to finance investments. Capital structure decisions.- Example: PepsiCash flow from operating activities 9,688Cash flow from investing activities -2,625Cash flow from financing activities -3,789Exchange rate changes - 196Net change in cash 3,078Beg Cash 6,297Change in Cash +3,078End Cash 9,375IV. Statement of Comprehensive Income:Net Income+ Unrelated gains and losses Comprehensive Income- Business report more expenses because the more expenses, the less they pay in taxes.V. Taxes:- Average Tax Rate = Total taxes paid Taxable income (EBT)- Marginal Tax Rate is the tax rate paid o the next dollar of taxable income.- Example: Taxable income = $14.5mi. Taxes paid = 50,000 (.15)25,000 (.25) 25,000 (.34) Always = 3,400,000235,000 (.39) 9,665,000 (.34) (14,500,000 – 10,000,000) (.35)Taxes paid = $4,975,000 ii. Taxed paid = 3,400,000 + [14,500,000 -10,000,000](.35) =4,975,000 Average Tax Rate = 4,975,000 = .343 or 34.3%
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