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Understanding

FinancialStatements, Taxes,and Cash Flows

Chapter 3

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Slide Contents

Learning Objectives

Principles Used in This Chapter

1. An Overview of the Fir!s Financial "tateents

#. The $ncoe "tateent%. Corporate Ta&es

'. The (alance "heet

). The Cash Flow "tateent

*e+ Ters

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Learning Objecties

1. ,escribe the content of the fo-r basic financialstateents and disc-ss the iportance offinancial stateent anal+sis to the financialanager.

#. val-ate fir profitabilit+ -sing the incoestateent.

%. stiate a fir!s ta& liabilit+ -sing the corporateta& sched-le and disting-ish between the

average and arginal ta& rate.

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"ntrod#ction

Use the balance sheet to describe a fir!sinvestents in assets and the wa+ it hasfinanced the.

$dentif+ the so-rces and -ses of cash flowfor a fir -sing the fir!s Cash Flow"tateent.

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%rinciples Used in This Chapter

Principle 1/ 0one+ as a Tie 2al-e.

3 4e need to recogni5e that financial stateentsdo not adj-st for tie val-e of one+.

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%rinciples Used in This Chapter'cont()

Principle %/ Cash Flows Are the "o-rce of2al-e.

3 Financial stateents provide an iportant

starting point in deterining the fir!s cashflow.

3 4e sho-ld be able to disting-ish betweenreported earnings and cash flow. $t is possible

for a fir to report positive earnings b-t haveno cash6

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%rinciples Used in This Chapter'cont()

Principle '/ 0ar7et Prices 8eflect$nforation.

3 Fir!s financial stateents provide iportant

inforation that is -sed b+ investors in foringe&pectations abo-t fir!s f-t-re prospects ands-bse9-entl+: the ar7et prices.

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3(+ n Oeriewo the Firm.sFinancialStatements

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0asic Financial Statements

Following fo-r t+pes of financial stateentsare andated b+ the acco-nting andfinancial reg-lator+ a-thorities/

1. $ncoe stateent#. (alance sheet

%. Cash flow stateent

'. "tateent of shareholder!s e9-it+

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0asic Financial Statements 'cont()

1. $ncoe "tateent/

3 An incoe stateent provides the followinginforation for a specific period of tie ;for

e&aple: a +ear or < onths or % onths=/ 8even-e: &penses: and

Profit.

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#. (alance sheet/

3 (alance sheet provides a snap shot of thefollowing on a specific date ;for e&aple: as of

,eceber %1: #>1>= Assets ;val-e of what the fir owns=: Liabilities ;val-e of fir!s debts=: and

"hareholder!s e9-it+ ;the one+ invested b+ thecopan+ owners=.

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%. Cash flow stateent/

3 $t reports cash received and cash spent b+ thefir over a period of tie ;for e&aple: over

the last < onths=.

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'. "tateent of shareholder!s e9-it+/

3 $t provides a detailed acco-nt of the fir!sactivities in the following acco-nts over a

period of tie ;for e&aple: last si& onths=/ Coon stoc7 acco-nt: Preferred stoc7 acco-nt:

8etained earnings acco-nt: and

Changes to owner!s e9-it+.

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hat is the Foc#s o this Chapter

,isc-ss the basic Contentand Formatof/

3 $ncoe stateent:

3 (alance sheet: and

3 Cash flow stateent

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h4 St#d4 Financial Statements

Anal+5ing a fir!s financial stateent can helpanagers carr+ o-t three iportant tas7s/

1. Assess c-rrent perforance thro-gh financialstateent anal+sis:

#. 0onitor and control operations: and

%. Forecast f-t-re perforance.

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h4 St#d4 Financial Statements'cont()

1. Financial stateent anal+sis/

3 Financial stateent anal+sis allows -s toassess the present financial condition of a

fir.3 Chapter ' introd-ces the tools and techni9-es

-sed to carr+ o-t financial stateent anal+sis.

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#. Financial control/

3 Financial stateents are -sed b+ both insiders;s-ch as anagers: board of directors= and

o-tsiders ;s-ch as s-ppliers: creditors= toonitor and control the fir!s operations.

3 For e&aple: a creditor a+ anal+5e a fir!sfinancial stateents to decide whether or notto renew copan+!s loan.

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%. Financial forecasting and planning/

3 Financial planning odels are t+picall+ b-ilt-sing the financial stateents.

3 Financial planning is covered in chapter 1?.

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hat are the cco#nting %rinciples Usedto %repare Financial Statements

The following three f-ndaental principles areadhered to b+ acco-ntants when preparingfinancial stateents/

1. The reven-e recognition principle:

#. The atching principle: and

%. The historical cost principle.

An -nderstanding of these basic principles allows

-s to be a ore infored -ser of financialstateents.

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hat are the cco#nting %rinciples Usedto %repare Financial Statements 'cont()

1. The reven-e recognition principle/

3 $t states that the reven-e sho-ld be incl-dedin the fir!s incoe stateent for the period

in which/ $ts goods and services were e&changed for

cash or acco-nts receivable@ or

The fir has copleted what it -st do to

be entitled to the cash.

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#. The atching principle/

3 This principle deterines whether specific costsor e&penses can be attrib-ted to this period!s

reven-es.3 The e&penses are atched with the reven-es

the+ helped prod-ce.

For e&aple: eplo+ees! salaries are recogni5edwhen the prod-ct prod-ced as a res-lt of that wor7 is

sold: and not when the wages were paid.

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%. The historical cost principle/

3 This principle provides the basis fordeterining the dollar val-es the fir reports

in its balance sheet.3 0ost assets and liabilities are reported in thefir!s financial stateents at historical cost i.e.the price the fir paid to ac9-ire the. Thehistorical cost generall+ does not e9-al thec-rrent ar7et val-e of the assets or liabilities.

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3(2 The "ncome

Statement

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n "ncome Statement

An incoe stateent is also called aprofitand loss statement.

An incoe stateent eas-res theao-nt of profits generated b+ a fir overa given tie period ;-s-all+ a +ear or a9-arter=.

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n "ncome Statement 'cont()

$ncoe stateent can be e&pressed asfollows/

3 8even-es ;or "ales= 3 &penses Profits

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An incoe stateent will contain thefollowing basic eleents/

1. 8even-es

#. &penses Cost of goods sold: $nterest e&penses: "BA ;selling:

general and adinistrative= e&pense: depreciatione&pense: $ncoe ta& e&pense

%. Profits

Bross profit: net operating incoe ;also 7nown as($T=: earnings before ta&es ;(T=: and net incoe

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"ales"ales3 0in-s Cost of Boods "old0in-s Cost of Boods "old

Bross Profit Bross Profit 0in-s Operating &penses0in-s Operating &penses

3 "elling e&penses"elling e&penses

3 Beneral and Adinistrative e&pensesBeneral and Adinistrative e&penses3 ,epreciation and Aorti5ation &pense,epreciation and Aorti5ation &pense

Operating incoe ;($T= Operating incoe ;($T= 0in-s $nterest &pense0in-s $nterest &pense arnings before ta&es ;(T= arnings before ta&es ;(T=

0in-s $ncoe ta&es0in-s $ncoe ta&es et incoe ;AT= et incoe ;AT=

3 ($T arnings before interest and ta&es@ (T arnings before ta&es@AT arnings after ta&es

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Sample "ncome Statement

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6al#ating a Firm.s 6%S and7iidends

4e can -se the incoe stateent todeterine the earnings per share ;P"=and dividends.

P" et incoeD -ber of shareso-tstanding

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6al#ating a Firm.s 6%S and7iidends 'cont()

&aple 1/ A fir reports a net incoeE> illion and has %) illion shareso-tstanding: what will be the earnings per

share ;P"=G

P" et incoe D -ber of shares

E> illion D E%) illion 82($*

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4e can deterine the dividends paid b+the fir to each shareholder b+ dividingthe total ao-nt of dividend ;reported on

the incoe stateent= b+ the total n-berof shares o-tstanding.

,ividends per share et incoe D-ber of shares

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&aple #/ A fir reports dividend pa+entof E#> illion on its incoe stateent andhas %) illion shares o-tstanding. 4hat will

be the dividends per shareG

,ividends per share et incoe D-ber of shares

E#> illion D E%) illion

81($*

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Connecting the "ncome Statementand the 0alance Sheet

4hat can the fir do with the netincoeG/

1. Pa+ dividends to shareholders: andHor

#. 8einvest in the fir

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Connecting the "ncome Statementand the 0alance Sheet 'cont()

&aple %/ 8eview e&aples 1 I #. ow-ch was retained or reinvested b+ thefirG

Ao-nt retained et $ncoe 3,ividends

E> J E#> 8*1m

The fir!s balance on retained earnings willincrease b+ E?> illion on the balancesheet.

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"nterpreting Firm %roitabilit4 #singthe "ncome Statement 'cont()

#. The gross profit argin ;BP0=

gross profits D sales

E

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%. The operating profit argin

net operating incoe D sales

E%N#.) illion D E#:?>> illion

+!(+*9

The operating profit argin is e9-al to the ratio

of net operating incoe or ($T divided b+ fir!ssales.

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et profit argin/

net profits D sales

E#>'.?) illion D E#:?>> illion

*($59

et profit argin indicates the percentage of

reven-es left after all e&penses ;incl-dinginterest and ta&es= have been considered.

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These profit argins ;gross profit argin:operating profit argin: and net profitargin= sho-ld be closel+ onitored and

copared to previo-s +ears and those ofcopeting firs.

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:% and 6arnings ;anagement

4hile the firs -st adhere to set ofacco-nting principles: BAAP ;Benerall+Accepted Acco-nting Principles=: there is

considerable roo for anagers toinfl-ence the fir!s reported earnings.

0anagers have an incentive to taper withreported earnings as their pa+ depends

-pon it and investors care abo-t it.

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Chec>. Calc-late the fir!s earnings per share and dividends per share.

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Chec

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Chec

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Checkpoint 3.1: Check Yourself

8econstr-ct the Bap!s incoe stateent ass-ing the fir isable to c-t its cost of goods sold b+ 1> and where the firpa+s ta&es at '> ta& rate. 4hat is the fir!s net incoe andearnings per shareG

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Step += %ict#re the %roblem

The incoe stateent can be e&pressed asfollows/

8even-es 3 &penses et $ncoe

The teplate on the ne&t slide can be -sed tosolve the e9-ation.

4e are given inforation on reven-es and

e&penses ;cost of goods sold: operating e&penses:interest e&pense and incoe ta&es= to fill theteplate.

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Step += %ict#re the %roblem 'cont()

Revenues

Less: Cost of goods sold

Equals Gross

profitLess: Operating expenses

Equals: netOperating income

Less: Interest expense

Equals: earnings

Before taxes

Less: Income taxes

Equals:NET INCOME

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Step 2= 7ecide on a Sol#tionStrateg4

Biven the acco-nt balances: constr-ctingthe incoe stateent will entails-bstit-ting the appropriate balances into

the teplate of step 1.

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Step 3= Sole

Revenues = !"#$%'''#'''

Less: Cost of goods sold= (#!)!#!''#'''

Equals: profit=*$"#+''#'''

Less: Operating expenses=*#(++#'''#'''

Equals: netOperating income=%#"$$#+''#'''

Less: Interest expense=!#'''#'''

Equals: earnings

Before taxes=%#"$"#+''#'''

Less: Income taxes ,"'-.=+#(!+#&''#'''

Equals:NET INCOME=$1,472,940,000

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Step 3= Sole 'cont()

arnings per share/

net incoe D n-ber of shares

E1:'?#:'>:>>> D ?1

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Step != nal4?e

The fir is profitable since it earned netincoe of E1:'?#:'>:>>>.

The shareholders were able be earn E#.>.%' indicating that thedifference of E1.?# was reinvested in the

corporation.

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3(3 CorporateTaxes

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Corporate Taxes

A fir!s incoe ta& liabilit+ is calc-lated-sing its ta&able incoe and the ta& rateson corporate incoe.

"ee the table on ne&t slide for corporateta& rates.

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Corporate tax rates

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Corporate tax rates

The table reveals the following/

3 Ta& rates range fro 1) to %

3 Ta& rates are progressive i.e. larger

corporations with higher profits will tend to pa+ore ta&es copared to saller firs withlower profits.

3 ote/ $n addition to federal ta&es: a fir a+face "tate and Cit+ ta&es.

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;arginal and erage Tax @ates

4hile anal+5ing the ta& conse9-ences of anew b-siness vent-re: the appropriate ta&rate is the arginal ta& rate.

;arginal tax rate is the ta& rate that thecopan+ will pa+ on its ne&t dollar ofta&able incoe.

erage tax rate is total ta&es paid

divided b+ the ta&able incoe.

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&aple %/ 4hat is the average andarginal ta& liabilit+ for a fir reportingE1>>:>>> as ta&able incoe.

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Average ta& rate

3 Total ta& liabilit+ D Total ta&able incoe

3 E##:#)> D E1>>:>>>

3 22(2$9 0arginal ta& rate

3 3/9as the fir will have to pa+ % on itsne&t dollar of ta&able incoe i.e. if its ta&able

incoe increases fro E1>>:>>> to E1>>:>>1.

7i id d 6 l i C t

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7iidend 6xcl#sion or CorporateShareholders

The dividend received b+ corporatestockholders are partiall+ e&ept frota&ation. The rationale is to avoid do-ble

ta&ation at the corporate level. Thepercentage of e&ept ta&es is based onthe degree of ownership of the fir.

ote dividends for non-corporate

investors: li7e +o- and e: are not e&eptfro ta&ation 3 the+ are act-all+: do-bleJta&ed.

7i id d 6 l i C t

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7iidend 6xcl#sion or CorporateShareholders

&aple '

3 4hat will be the ta&able incoe if fir A(Creceives E#>>:>>> in dividends fro fir QR.

3 The ta&able incoe will depend on the degreeof ownership of QR b+ A(C.

3 "ee ne&t slide.

7i id d 6 l i C t

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7iidend 6xcl#sion or CorporateShareholders 'cont()

OwnershipInterest

i!i"en"E#lusi%n

i!i"en"In%&e

Ta#a'leIn%&e

(ess than20)

70) $200,000 $*0,000

20) t%79)

7+) $200,000 $+0,000

0) %r&%re

100) $200,000 $0

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The 0alance Sheet

The balance sheet provides a snapshot ofthe fir!s financial position on a specificdate.

The balance sheet is defined b+ thefollowing e9-ation/

Total Assets Total Liabilities S Total "hareholder!s 9-it+

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The 0alance Sheet 'cont()

Total assets represents the reso-rcesowned b+ the fir.

Total liabilities represent the total

ao-nt of one+ the fir owes itscreditors

Total shareholders. eA#it4 refers to thedifference in the val-e of the fir!s total

assets and the fir!s total liabilities.

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$n general: BAAP re9-ires that the firreport assets on its balance sheet -singthe historical costs.

Cash and assets held for sale ;s-ch asar7etable sec-rities= are an e&ception tothe r-le. These assets are reported -singthe lower of their cost or c-rrent ar7et

val-e.

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Assets whose val-e is e&pected to declineover tie ;s-ch as e9-ipent= is reportedas net e9-ipentM which is e9-al to the

historical cost in-s acc--lateddepreciation.

ote: the net val-e reported on balancesheet co-ld be significantl+ different fro

the ar7et val-e of the asset.

Th 0 l

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The 0alanceSheet 'cont()

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The balance sheet incl-des the followingain coponents/

1.Assets 3 Fo-nd on the leftJhand side of

the balance sheet. $t incl-des c-rrentassets and fi&ed assets.

#."o-rces of financing 3 Fo-nd on the

rightJhand side of the balance sheet. $tincl-des c-rrent liabilities: longJterliabilities: and owner!s e9-it+.

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C#rrent assetsconsists of fir!s cashpl-s other assets the fir e&pects toconvert to cash within 1# onths or less:

s-ch as receivables and inventor+.

Fixed assets are assets that the firdoes not e&pect to sell within one +ear. For

e&aple: plant and e9-ipent: land.

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C#rrent liabilities represent the ao-ntthat the fir owes to creditors that -stbe repaid within a period of 1# onths or

less s-ch as acco-nts pa+able: notespa+able.

Long-term liabilities refer to debt with

at-rities longer than a +ear s-ch as ban7loans: bonds.

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The stoc

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For e&aple: ,L* corporation!s par val-eper share is E#.>> and the fir has %>illion shares o-tstanding s-ch that the

par value of the fir!s coon e9-it+ isE illion. $f the stoc7s were iss-ed toinvestors for E#'> illion: E1N> illionrepresentspaid in capital.

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;#= The ao-nt of the fir!s retainedearnings. 8etained earnings are theportion of net incoe that has been

retained ;i.e. not paid in dividends= froprior +ears operations.

Th-s stoc7holder!s e9-it+

Par val-e of coon stoc7 S Paid inCapital S 8etained arnings

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4e can also e&press stoc7holders! e9-it+as follows/

"hareholders e9-it+ Total Assets 3 TotalLiabilities

Firm LiA#idit4 and Bet or

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The0alance

Sheet

h < i

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Chec

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Chec

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Chec

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Chec

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Chec

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The fir!s balance sheet can be e&pressedas follows/

Total Shareholders. 6A#it4

Total Liabilities> Total ssets

The teplate on the following slide shows

how to constr-ct the balance sheet.

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Current /ssetsCas0/ccounts Receiva1leInventoriesOt0er current assets2otal current assets

Current Lia1ilities/ccounts pa3a1le40ort5term de1tOt0er current lia1ilities

2otal current lia1ilities

Long5term Lia1ilitiesLong5term de1t

Long5term ,fixed. assetsGross 66ELess: /ccumulated depreciation7et propert3# plant and equip8

Ot0er long5term assets

2otal long5term assets

O9ners Equit36ar value of common stoc;6aid5in5capitalRetained earnings

2otal equit3

2otal /ssets 2otal Lia1ilities andO9ners equit3

Step 2= 7ecide on a Sol#tion

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Copyright 2011 Pearson Prentice Hall. All rights reserved.3-5$

Step 2= 7ecide on a Sol#tionStrateg4

4e are given the acco-nt balances so inorder to constr-ct the balance sheet weneed to s-bstit-te the appropriatebalances into the teplate developed instep 1.

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Step 3= Sole

Cas0InventoriesOt0er currentassets

)$'''#'''!#$''''#''')"*#'''#'''

Currentlia1ilities

!#!$(#'''#'''

2otal currentassets

*#''$#'''#''' 2otal currentlia1ilities

!#!$(#'''#'''

7et 6ropert3#6lant andequipment

%#++*#'''#''' Long5termlia1ilities

!#'!+#'''#'''

Ot0er long5term assets

&%'''#''' Common Equit3 "#*()#'''#'''

2otal /ssets $*,+*4,000,000

2otalLia1ilitiesand Equit3

$*,+*4,000,000

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Step != nal4?e

4e can a7e the following observations froBap!s (alance sheet/

3 The total assets of E>>:>>> of thetotal.

3 The fir has a health+ net wor7ing capital of

E1:N'?:>>>:>>> ;%:>>):>>>:>>> in-s1:1)N:>>>:>>>=.

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7ebt and 6A#it4 Financing

The rightJhand side of the balance sheetreveals the so-rces of one+ -sed tofinance the p-rchase of the fir!s assetslisted on the leftJhand side of the balancesheet.

$t shows how -ch was borrowed ;debtfinancing= and how -ch was provided b+

fir!s owners ;e9-it+ financing: thro-ghthe sale of e9-it+ or retention of prior+ear!s earnings=.

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7ebt ers#s 6A#it4

Pa+ent/ Pa+ent for debt holders isgenerall+ fi&ed ;in the for of interest=@Pa+ent for e9-it+ holders ;dividends= isnot fi&ed nor g-aranteed.

"eniorit+/ ,ebt holders are paid beforee9-it+ holders in the event of ban7r-ptc+.

0at-rit+/ ,ebt at-res after a fi&ed period

while e9-it+ sec-rities do not at-re.

0oo< Dal#es, Eistorical Costs, and

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3-/1

oo a #es, sto ca Costs, a d;ar

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3($ The CashFlow Statement

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3-/2

The Cash Flow Statement

The Cash Flow Statement is -sed b+firs to e&plain changes in their cashbalances over a period of tie b+identif+ing all of the so-rces and -ses ofcash.

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3-/3

So#rces and Uses o Cash

"o-rce of cash is an+ activit+ that bringscash into the fir. For e&aple: sale ofe9-ipent.

Use of cash is an+ activit+ that ca-ses cashto leave the fir. For e&aple: pa+ent ofta&es.

0alance Sheet or

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3-/!

0alance Sheet orE(( 0oswell, "nc(

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3-/$

Cash Flow nal4sis

4h+ did the cash balance decline b+ E'.)illion fro #>> to #>1>G

1.Acco-nts receivable increased b+ E##.)

illion representing an increase in-ncollected cash fro credit sales. Th-s itrepresents E##.) of use of cash toinvest in acco-nts receivable.

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3-/&

Cash Flow nal4sis 'cont()

#. $nventor+ increased b+ E1'N.)> illionindicating use of cash to proc-reinventor+.

%. 9-ipent increased b+ E1?).)> illionindicating use of cash to invest ine9-ipent.

$n general:

3 an increase in an asset acco-nt -se of cash

3 a decrease in an asset acco-nt so-rce ofcash

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3-/*


'. Acco-nts Pa+able: credit e&tended to thefir: increased b+ E'.)illion. Th-ssource of cash increased b+ E'.)illiond-e to acco-nts pa+able.

). LongJter debt increased b+ E)1.?)illion indicating a so-rce of cash.

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3-/5


?. 8etained earnings increased b+ E1).?)illion representing a source of cash to thefir fro the fir!s operations.

$n general:

3 An increase in a liabilit+ acco-nt so-rce ofcash

3 A decrease in a liabilit+ acco-nt -se of cash

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3-//


Change in cash balance "o-rces of cash3 Use of Cash E#1< J E##>.)> -8!($1

-%ures %. Cash /ses %. Cash

Increase in /ccounts

6a3a1le = "8$'

Increase in /ccounts

Receiva1le %%8$'

Increase in long5termde1t =$!8)$

Increase in inventor3 =!"(8$'

Increase in retainedearnings = !$+8)$

Increase in net plantand equipment = "'8$'

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3-+11


An anal+sis of .K. (oswell!s operations revealsthe following for #>1>/

3 The fir -sed ore cash than it generated:res-lting in a deficit of E'.) illion

3 The priar+ so-rce of cash flow was retainedearnings ;E1).?) illion= followed b+ longJter debt ;E)1.?) illion=

3 The largest -se of cash was for ac9-iring

inventor+ at E1'N.) illion.

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3-+1+

Cash Flow nal4sis S#mmar4

-%ures %. Cash /ses %. Cash

erease in an asseta%unt

Inrease in an asseta%unt

Inrease in alia'ilit a%unt

erease in alia'ilit a%unt

Inrease in an%wners equit

a%unt

erease in an%wners equit

a%unt

h l

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3-+12

Cash Flow Statement

The forat for a traditional cash flowstateent is as follows/

(eginning Cash (alance

Pl-s/ Cash Flow fro Operating ActivitiesPl-s/ Cash Flow fro $nvesting Activities

Pl-s/ Cash Flow fro Financing Activities

9-als/ nding Cash (alance

C h l S ' )

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3-+13

Cash Flow Statement 'cont()

Operating activities represent thecopan+!s core b-siness incl-ding salesand e&penses. (asicall+ an+ activit+ thataffects net incoe for the period.

$nvesting activities incl-de the cash flowsthat arise o-t of the p-rchase and sale of

longJter assets s-ch as plant ande9-ipent.

C h Fl S ' )

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3-+1!

Cash Flow Statement 'cont()

Financing activities represent changes inthe fir!s -se of debt and e9-it+ s-ch asiss-e of new shares: pa+ent of dividends.

E(( 0oswell,

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3-+1$

E(( 0oswell,"nc(

Statement oCash Flows

Chec

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3-+1&

Chec>' thro-gh #>>? ;fo-nd below=/

Chec

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3-+1*

Chec

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3-+15

Chec

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3-+1/

Chec

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3-++1

Chec

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3-+++

Chec>.


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The cash flow stateent -ses inforationfro the fir!s balance sheet and incoestateent to identif+ the net so-rces and-ses of cash for a specific period of tie.

The so-rces and -ses of cash areorgani5ed into cash fro operatingactivities: investing activities: and

financing activities.

Step += %ict#re the %roblem 'cont )

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The forat for a traditional cash flow stateent isas follows/

(eginning Cash (alance

Pl-s/ Cash Flow fro Operating Activities

Pl-s/ Cash Flow fro $nvesting Activities

Pl-s/ Cash Flow fro Financing Activities

9-als/ nding Cash (alance

Step += %ict#re the %roblem 'cont )

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ere we have to copare the cash flowfro operating activities and investentactivities in #>>? for &co 8eso-rces;CO=.

Step 2= 7ecide on a Sol#tionSt t

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Strateg4

4e can copare the cash flow frooperating activities and cash flow froinvesting activities b+ loo7ing at the cashflow stateent.

The cash flow stateent can be retrievedfro http/HHfinance.google.coHfinance

Step 3= Sole
http://finance.google.com/financehttp://finance.google.com/finance

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Step 3= Sole

Cash flow fro operating activities3 CO had a positive cash flow fro operating

activities of 8$**(53 million in #>>?. $n #>>? were the fir!sdepreciationHdepletion e&pense and nonJcash

e&pense. et wor7ing capital is a -se of cash.

Step 3= Sole 'cont )

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Step 3= Sole 'cont()

Cash flow fro investing activities/

3 Cash flow fro investing activities were'82,3/&(!!) million in #>>?.

3 CO had invested heavil+ in capitale&pendit-res in #>>? with a total e&pense ofE#:N'

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Step != nal4?e

The cash flow stateent for #>>? depicts aprofitable fir with positive cash flow frooperations.

The fir has been aggressivel+ investing in fi&ed

assets to the t-ne of alost ' ties its operatingcash flows.

The fir has been able to s-ccessf-ll+ raiseone+ fro capital ar7ets b+ iss-ing stoc7s of

nearl+ E#:>>> illion.

Ge4 Terms

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Ge4 Terms

Acco-nts receivable Acco-nts pa+able

Acc--lated depreciation

PaidJinJcapital Average ta& rate

(alance sheet

Cash flow stateent

Ge4 Terms 'cont )

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Ge4 Terms 'cont()

Cost of goods sold C-rrent assets

C-rrent liabilities

,epreciation e&pense ,ividends per share

arnings before interest and ta&es ;($T=

arnings per share

Ge4 Terms 'cont )

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Ge4 Terms 'cont()

Fi&ed assets Bross plant and e9-ipent

Bross profit argin

$ncoe stateent $nventories

Li9-idit+

LongJter debt

Ge4 Terms 'cont )

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Ge4 Terms 'cont()

0arginal ta& rate 0ar7et val-e

et operating incoe

et incoe et plant and e9-ipent

et profit argin

et wor7ing capital

Ge4 Terms 'cont )

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Ge4 Terms 'cont()

Operating profit argin Par val-e

Profits

8etained earnings 8even-es

"o-rce of cash

"toc7holders! e9-it+

Ge4 Terms 'cont )

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Ge4 Terms 'cont()

Ta&able incoe Total assets

Total liabilities

Total shareholders! e9-it+ Uses of cash

m03_titman_2544318_11_finmgt_c03

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