UNDERSTANDING FINANCIAL STATEMENTS, TAXES, AND FREE CASH FLOWS

I.K. Gunarta ITS Surabaya Email: ik.gunarta@gmail.com Mobile: 0811 372 068

Financial Statements
Income statement A summary of the revenue and expenses for a specific period of time. Statement of owners equity A summary of the changes in the owners equity that have occurred during a specific period of time. Balance sheet A list of the assets, liabilities, and owners equity as of a specific date. Statement of cash flows A summary of the cash receipts and disbursements for a specific period of time.

Income Statement SALES - EXPENSES = PROFIT

Cost of Goods Sold Operating Expenses
(marketing, administrative)

Financing Costs Taxes

SALES - Cost of Goods Sold GROSS PROFIT

Income Statement

- Operating Expenses OPERATING INCOME (EBIT)

- Interest Expense EARNINGS BEFORE TAXES (EBT) - Income Taxes

EARNINGS AFTER TAXES (EAT)

- Preferred Stock Dividends - NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

SALES - Cost of Goods Sold GROSS PROFIT

Income Statement

- Operating Expenses OPERATING INCOME (EBIT)

- Interest Expense EARNINGS BEFORE TAXES (EBT) - Income Taxes

EARNINGS AFTER TAXES (EAT)

- Preferred Stock Dividends - NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

Laporan Laba Rugi Harley Davidson 31-12-2002 2002 4,195,197 2,673,129 1,522,068 465,831 160,119 625,950 896,118 17,849 878,269 298,052 580,217 36% 21% 14% 25%

Penjualan Harga pokok penjualan Laba kotor Beban penjualan, umum dan administrasi Depresiasi Jumlah beban usaha Laba usaha Biaya bunga Pendapatan sebelum pajak Provisi pajak pendapatan Pendapatan bersih Gross margin Operating margin Net Margin EBITDA margin

Pendapatan dari aktivitas operasional

Juga disebut sebagai pendapatan sebelum bunga dan pajak

Biaya modal pinjaman

Pendapatan yang dihasilkan dari aktivitas usaha dan aktivitas pembiayaan

Laporan Laba Rugi Harley Davidson 31-12-2002 2002 4,195,197 2,673,129 1,522,068 465,831 160,119 625,950 896,118 17,849 878,269 298,052 580,217 36% 21% 14% 25%

Penjualan Harga pokok penjualan Laba kotor Beban penjualan, umum dan administrasi Depresiasi Jumlah beban usaha Laba usaha Biaya bunga Pendapatan sebelum pajak Provisi pajak pendapatan Pendapatan bersih Gross margin Operating margin Net Margin EBITDA margin

Rasio Profitabilitas

Balance Sheet Outstanding Debt + Shareholders Equity

Total Assets =

Balance Sheet
Assets Current Assets
Cash Marketable Securities Accounts Receivable Inventories Prepaid Expenses

Liabilities (Debt) & Equity Current Liabilities

Accounts Payable Accrued Expenses Short-term notes

Long-Term Liabilities
Long-term notes Mortgages

Fixed Assets
Machinery & Equipment Buildings and Land

Equity
Preferred Stock Common Stock (Par value) Paid in Capital Retained Earnings

Other Assets
Investments & patents

Assets
Current Assets: assets that are relatively liquid, and are expected to be converted to cash within a year.
Cash, marketable securities, accounts receivable, inventories, prepaid expenses.

Assets
Fixed Assets: machinery and equipment, buildings, and land.

Assets
Other Assets: any asset that is not a current asset or fixed asset.
Intangible assets, such as patents and copyrights.

Financing
Debt Capital: financing provided by a creditor. Short-term debt: borrowed money that must be repaid within the next 12 months.
Accounts payable, other payables such as interest or taxes payable, accrued expenses, short-term notes.

Long-term debt: loans from banks or other sources that lend money for longer than 12 months.

Financing
Equity Capital: shareholders
investment in the firm. Preferred Stockholders: receive fixed dividends, and have higher priority than common stockholders in event of liquidation of the firm. Common Stockholders: residual owners of a business. They receive whatever is left after creditors and preferred stockholders are paid.

Corporate Income Tax Rates

Since 1993 Taxable Income $1 - $50,000 $50,001 - $75,000 $75,001 - $100,000 $100,001 - $335,000 $335,001 - $10,000,000 $10,000,001 - $15,000,000 $15,000,001 - $18,333,333 over $18,333,333 Corporate Tax Rate 15% 25% 34% 39% 34% 35% 38% 35%

Free Cash Flows

Free cash flow: cash flow that is free and available to be distributed to the firms investors (both debt and equity investors).

Free Cash Flows

Cash Flows from Assets

Cash Flows from Financing

Cash flows generated through the firms assets

Cash flows paid to - or received from - the firms investors (creditors & stockholders)

Calculating Free Cash Flows:

An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets

Calculating Free Cash Flows:

An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets
Operating income + depreciation - cash tax payments

Calculating Free Cash Flows:

An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets

[Change in current assets]

[change in non-interest bearing current liabilities]

Calculating Free Cash Flows:

An Asset Perspective After-tax cash flow from operations less investment in net operating working capital less investments in fixed and other assets

Change in gross fixed assets, and any other assets that are on the balance sheet.

Calculating Free Cash Flows:

A Financing Perspective
Interest payments to creditors change in debt principal dividends paid to stockholders change in stock

Financing Free Cash Flows

Tax Example:

Contoh Perhitungan Tax Liability (Kewajiban Pajak)

Space Cow Computer has sales of $32 million, cost of goods sold at 60% of sales, cash operating expenses of $2.4 million, and $1.4 million in depreciation expense. The firm has $12 million in 9.5% bonds outstanding. The firm will pay $500,000 in dividends to its common stock holders. Calculate the firms tax liability.

Sales Cost of Goods Sold Operating Expenses Depreciation Expense EBIT Interest Expense Taxable Income

$32,000,000 (19,200,000) (2,400,000) (1,400,000) 9,000,000 (1,140,000) 7,860,000

Income Tax Rate 50,000 x 0.15 = 25,000 x 0.25 = 25,000 x 0.34 = 235,000 x 0.39 = 7,525,000 x 0.34 = Total Tax Payments Atau, total tax payments: 7,860,000 x 0.34 =

Tax Payment 7,500 6,250 8,500 91,650 2,558,500 2,672,400

2,672,400