Académique Documents
Professionnel Documents
Culture Documents
Week 2
Balance sheet
Income statement
Statement of cash flows
Statement of changes in shareholders (or stockholders) equity
Assets
What the company owns
Liabilities
What the company owes
Shareholders Equity
The difference between the value of the firms assets and liabilities
2.2 Assets
Current Assets: cash or asset expected to be turned
into cash within one year
Cash
Accounts receivable
Inventories
etc
Goodwill
Amortization
etc
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2.2 Liabilities
Current Liabilities: due to be paid within one year
Accounts payable
Short-term debt payable
Wages payable
etc
2.2 Liabilities
The difference between current assets and current
liabilities is the firms net working capital, the capital
available in the short term to run the business.
Net Working Capital = Current Assets Current
Liabilities
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Debt-Equity Ratio
Debt-Equity Ratio
Total Debt
Total Equity
Enterprise Value
Enterprise Value Market Value of Equity Debt Cash
Assesses the value of the underlying business assets.
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Gross Profit
Sales
Reflects firms ability to sell a product for more than the cost of
producing it.
Net Income
Total Sales
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Investment Returns
Return on Equity (ROE)
Return on Equity
Net Income
Book Value of Equity
Total Assets
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Sales
Total Assets
Net Income
ROE
Sales
Asset Turnover
Equity Multiplier
Return On Assets
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P / E Ratio
Market Capitalization
Share Price
Net Income
Earnings per Share
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Financing Activities
Shows the cash flows from financing activities
Examples of cash outflows: dividend payments, share repurchases
Examples of cash inflows: increase in borrowing
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Solution:
Depreciation affects cash flow via 2 channels: net income & operating
activities cash flow.
Pre-tax income falls by 1m tax expense falls by 0.26m net
income falls by 0.74m.
Operating activities cash flow rises by 1m.
Therefore, the net impact is 1m - 0.74m = 0.26m
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WorldCom
Another record-breaking scandal.
Fraud: reclassify operating expenses as long-term capital expenditures.
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A few notes:
Homework
Chapter 2: 8, 25
Chapter 19: 1, 5, 9
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