Beruflich Dokumente
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2-1
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 2 Study Guide
Section 2.1 Balance Sheet
Snapshot of Firms Assets and Liabilities
Assets: The Left Side
Liabilities and OE: The Right Side
Balance Sheet Identity
Residual Belongs to Shareholders
Net Working Capital
Liquidity
Debt vs. Equity
Market Value vs. Book Value
10-2
Balance Sheet
The balance sheet is a snapshot of the
firms assets and liabilities at
a given point in time
Assets are listed in order
of decreasing liquidity
2-4
The Balance Sheet
Figure 2.1
2-5
Net Working Capital
NWC = Current Assets
Current Liabilities
Positive when the cash that will be
received over the next 12 months
exceeds the cash that will be paid out
over the same period
2-8
Debt vs. Equity
Equity is the assets owned by
shareholders
Residual or left-overs from the
creditors
Shareholders equity = Assets -
Liabilities
Debit is borrowing
Financial leverage
Magnifies both gains and losses
Too much debt creates financial
distress
2-9
Market Value vs. Book
Value
Book values are historical
costs
Market values are the prices
at which assets, liabilities, or
equity can actually be bought
or sold.
The balance sheet provides
the book value of the assets,
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liabilities, and equity.
Differences Between Market
Values and Book Values
Book values are determined by
accounting rules
Market values are independent of
accounting rules
Current assets have little difference
between book and market values
The value of the firm is not shown on
the balance sheet
Market values are more important to
the decision-making process
2-11
Income Statement
The income statement is more like a
video (as opposed to a snapshot) of the
firms operations over a specified
period of time.
You generally report revenues first
and then deduct any expenses for the
period.
Matching principle
GAAP says to show revenue when it
accrues and match the expenses required
to generate the revenue.
2-12
Income statement does not represent
US Corporation Income
Statement Table 2.2
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Taxes
The one thing we can rely on with
taxes is that they are always
changing!
Marginal vs. average tax rates
Marginal tax rate the percentage
paid on the next dollar earned
Average tax rate the tax bill /
taxable income
Other taxes in addition to federal
taxes
State
2-14 Local (City or Town)
Corporate Progressive Taxes
8 corporate federal tax rate
categories
6 unique corporate federal tax
brackets
2-15
Corporate Federal Tax Rates
2-18
The Concept of Cash Flow
2-20
Cash Flow From Assets
CFFA = CF to creditors + CF
to Stockholders
2-21
Example of CFFA: Part I
Using the U.S. Corporation income
statement (I/S) and balance sheet
(B/S):
CF to Creditors (B/S and I/S) =
interest paid net new borrowing =
$24
CF to Stockholders (B/S and I/S) =
dividends paid net new equity raised
= $63
CFFA = CF to creditors + CF to
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Stockholders
Cash Flow From Assets
Therefore:
OCF NCS NWC = CF to creditors
+ CF to Stockholders
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Example of CFFA: Part II
Again, using the U.S. Corporation income
statement (I/S) and balance sheet (B/S):
OCF (I/S) = EBIT + depreciation taxes = $547
2-24
The Big Picture Problem: Balance Sheet
and Income Statement Information
Current Accounts
2009: CA = 3625; CL = 1787
2008: CA = 3596; CL = 2140
Fixed Assets and Depreciation
2009: NFA = 2194; 2008: NFA = 2261
Depreciation Expense = 500
Long-term Debt and Equity
2009: LTD = 538; Common stock & APIC =
462
2008: LTD = 581; Common stock & APIC =
372
Income Statement
EBIT = 1014; Taxes = 368
Interest Expense = 93; Dividends = 285
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Task: use the information on the
previous slide to compute the
following:
1. OCF
2. NCS
3. Changes in NWC
4. CFFA
5. CF to Creditors
6. CF to Stockholders
7. CFFA
8. Does the CF identity hold?
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Cash Flow Problem Answers:
CFFA = CF to creditors +
CF to Stockholders
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