FINANCIAL STATEMENTS, TAXES AND CASH FLOW

1
FINANCIAL STATEMENTS, TAXES AND CASH FLOW
2
FINANCIAL ANALYSIS

• Purpose
• Definition
• Techniques
• Cash flow analysis
• Ratio analysis

3
FINANCIAL STATEMENTS

• The Balance Sheet
• The Income Statement
• Cash Flow Equations and the Black Box Model
• The Importance of Taxes

4
THE INCOME STATEMENT

• SALES
• - COST OF GOODS SOLD
• GROSS PROFIT
• - OPERATING EXPENSES
• - DEPRECIATION
• EARNINGS BEFORE INTEREST AND TAXES (EBIT)
• - INTEREST EXPENSE
• EARNINGS BEFORE TAXES (EBT)
• - TAXES
• NET INCOME
• DIVIDENDS PAID
• ADDITION TO RETAINED EARNINGS

5
THE BALANCE SHEET

• CURRENT ASSETS
• FIXED ASSETS
• TOTAL ASSETS

CURRENT LIABILITIES LONG-TERM DEBT OWNERS
EQUITY TOTAL LIABILITIES AND OWNERS EQUITY
BALANCE SHEET IDENTITY TA TL OE
6
CASH FLOW EQUATIONS

• BOTTOM-UP APPROACH
• CFA CFC CFS
• CFC Interest paid - Net new LT borrowing
• CFS Dividends paid - Net new equity
• TOP-DOWN APPROACH
• CFA OCF - Net cap. sp. - chg. in NWC
• OCF EBIT Depreciation - taxes
• Net cap. sp. NFAend - NFAbeg Dep.
• Chg. NWC NWCend - NWCbeg

7
QD ANALYSIS EXERCISE YAHOO!

• Yahoo.com

What is Yahoos CFA? (Bottom-up approach)
What is Yahoos CFA? (Top-down approach)