Scribd
Upload
13 views10 pages

lectutre 4-1 (1)

Uploaded by

itachivaga546
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
13 views10 pages

lectutre 4-1 (1)

Uploaded by

itachivaga546
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 10

Financial

Statements
What is a Financial Statement?

A financial statement is a quantitative way of showing how a


company is doing.
Three different ways of representing the financial state of a
company:
1. Cash Management (can the company meet its
obligations?)
2. Profitability (Is it making money?) - the income statement
3. Assets versus Liabilities (what is the value of the
company? Who owns what?) - the balance sheet
Each one of these questions is answered by our Financial
Statements.
The Big Three
• Cash Flow Statements
• These answer the important managerial question “do I
have enough cash to run my business”
• Income Statements
• This is the financial sheet that tells you if your company is
profitable or not.
• Balance Sheets
• How much debt do I have? How large are my assets? This
sheet tells you the answer to these questions.
Cash Flow Statements

• A report of all a firm’s transactions that involve cash


• The key elements are revenues (money flowing in) and
expenses (money flowing out).
• Cash flow statements compare the sum of the
revenues to the sum of the expenses on a regular time
basis – usually monthly.

“Manning Electronics” (Engineering 9) – Did Ms. Manning


have enough cash to buy that piece of equipment for her
boat business?
Fixed Costs

• Rent payments
• Salaried employees
• Capital Investments and (some) maintenance
• Utilities (phone, water, electric, etc)
• Insurance
• Taxes (on property, plant, and equipment)
• Advertising (*)
• Others things that do not depend on number of units produced.
Variable Costs

• Materials Cost
• Supplies
• Production Wages
• Outside / Contracted labor
• Advertising (*)
• Sales Commissions / Distribution Costs
• Equipment Maintenance
• Other things that depend on the number of units produced (e.g.
royalties paid)
Cumulative Cash Flow -
Cash Balance
• Just like the average person keeps their checking account balance – a
firm also needs to know their cumulative cash flow or cash balance.
• It is an easy calculation – simply take the cumulative cash flow from
this month and add it to the previous month’s cash balance.
• Your very first month’s cumulative cash balance is your first month’s
monthly cash flow added to your start-up capital (probably an initial
loan or first round financing).
Calculating Depreciation
1. Continue depreciation on items purchased in earlier years, using
previously established methods
2. Sum up all of that fiscal year’s capital expenses
3. Decide which method of Depreciation your firm wants to use
(Straight Line or Accelerated)
4. Determine the useful lifetime for the assets
5. Determine the salvage value
6. Use the formulas to calculate depreciation on new equipment
7. Add up all depreciation contributions

NOTE: while EBIDT may be a monthly figure – since taxes and


depreciation are only calculated once a year – EBIT, EBI, and net
earnings MUST be Year-End numbers.
Calculating Taxes

• Take the EBIDT and subtract the depreciation – this yields Earnings
Before Interest and Tax
• Then calculate profit (or earnings) before taxes by subtracting
interest expenses.
• Then multiply the profit before taxes by your effective tax rate – that
will give the corporate income taxes the firm owes.
Comparison (cont.)

• Further the Income Statement’s year-end figures for COGS, Salary,


Rent, Advertising, and sales should be the 12 month totals of the
cash-flows corresponding to the respective line item
• Likewise, depreciation and taxes should be equal for that fiscal year

You might also like