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Vicentiu Covrig FIN303
Sources of Information
Annual reports
Wall Street Journal
Internet
- www.yahoo.com
- www.smartmoney.com
Mergent online
SEC
- EDGAR
- 10K & 10Q reports
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Vicentiu Covrig FIN303
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Vicentiu Covrig FIN303
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Vicentiu Covrig FIN303
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Vicentiu Covrig FIN303
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Vicentiu Covrig FIN303
Income Statement
2015 2014
Sales $6,034,000 $3,432,000
COGS 5,528,000 2,864,000
Other expenses 519,988 358,672
Total oper. costs excl.
deprec. & amort. $6,047,988 $3,222,672
Depreciation and amortization 116,960 18,900
EBIT ($ 130,948) $ 190,428
Interest expense 136,012 43,828
EBT ($ 266,960) $ 146,600
Taxes (106,784) 58,640
Net income ($ 160,176) $ 87,960
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Vicentiu Covrig FIN303
Other Data
2015 2014
No. of shares 100,000 100,000
EPS -$1.602 $0.88
DPS $0.11 $0.22
Stock price $2.25 $8.50
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Vicentiu Covrig FIN303
Did the expansion create additional
after-tax operating income?
AT operating income = EBIT(1 Tax rate)
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Vicentiu Covrig FIN303
What effect did the expansion have on
net operating working capital?
Current Current Notes
NOWC
assets liabilities payable
NOWC14 $842,400
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Vicentiu Covrig FIN303
What was the free cash flow (FCF) for
2015?
Depr. and Capital
FCF EBIT(1 T) NOWC
amortizati on expenditur es
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Vicentiu Covrig FIN303
What was DLeons MVA in 2014 and
2015?
MVA14 = ($8.50 x 100,000) $663,768
= $186,232.
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Vicentiu Covrig FIN303
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Vicentiu Covrig FIN303
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Vicentiu Covrig FIN303
Tax treatment of various uses and
sources of funds
Interest paid tax deductible for corporations (paid
out of pre-tax income), but usually not for individuals
(interest on home loans being the exception).
Interest earned usually fully taxable (an exception
being interest from a (muni).
Dividends paid paid out of after-tax income.
Dividends received taxed as ordinary income for
individuals (double taxation). A portion of
dividends received by corporations is tax excludable,
in order to avoid triple taxation.
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Vicentiu Covrig FIN303
Tax Treatment of Various Uses and
Sources of Funds
Dividends received: most investors pay 15% taxes.
- Investors in the 10% or 15% tax bracket pay 0% on
qualified dividends.
- Single individuals with incomes over $400,000 and
married couples filing jointly with incomes over
$450,000 pay 20% taxes on dividends.
- Dividends are paid out of net income which has
already been taxed at the corporate level, this is a form
of double taxation.
- A portion of dividends received by corporations is tax
excludable, in order to avoid triple taxation.
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Vicentiu Covrig FIN303
More Tax Issues
Tax Loss Carry-Back and Carry-Forward since corporate
incomes can fluctuate widely, the Tax Code allows firms to
carry losses back to offset profits in previous years or
forward to offset profits in the future.
Capital gains defined as the profits from the sale of assets
not normally transacted in the normal course of business,
capital gains for individuals are generally taxed as ordinary
income if held for a year or less, and at the capital gains rate
if held for more than a year. Corporations face somewhat
different rules.
Most taxpayers pay 15% taxes on long-term capital gains.
Single individuals with incomes over $400,000 and married
couples filing jointly with incomes over $450,000 pay 20%
taxes on long-germ capital gains.
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Vicentiu Covrig FIN303
Learning objectives
Annual report; Balance sheet; Income Statement items you see on the slides
You DO NOT need to know the Statement of Cash Flows (3.4)
Free Cash Flow
MVA and EVA (no numerical problems)
Taxes
All the numerical problems on the slides and recommended below from end of
chapter
You need to know to do After Tax Income problems and remember the formula
from page 81
Questions: ST-1, ST-2 a,b,c,d; 3-1 to 3-5; 3-7,3-9,3-10
Problems: 3-1, 3-2, 3-3, 3-5, 3-8,
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