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In this chapter, we examine fi nancial statements, taxes, and cash flow. The goal of this chapter is to briefl y examine such statements and point out some of their more relevant features. This chapter pay special attention to some of the practical details of cash flow. | T2.1 Chapter Outline Chapter 2 Financial Statements, Taxes, and Cash Flow Chapter Organization 2.1 The Balance Sheet 2.2 The Income Statement 2.3 Cash Flow 2.4 Taxes 2.5 Capital Cost Allowance 2.6 Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE copyright © 2002 McGraw-Hill Ryerson,Ltd. T2.2 The Balance Sheet (Figure 2.1) T2.2 The Balance Sheet Components Assets (Current & Long-Term) Liabilities (Current & Long-Term) Owners Equity Key concepts Liquidity Net Working Capital Current Assets minus Current Liabilities Debt vs. Equity Market vs. Book Value T2.3 Income Statement Components Revenues Expenses Cash and non-cash Operating and non-operating Net Income Earnings per share Dividends T2.4 Cash Flow Cash flows are essential to valuation Accounting methods give an estimate of the economic value of transactions In Finance, the main concern is the timing of cash flows. Since the income statement includes non-cash items, we will have to adjust it to get information on cash flows Balance sheet activity plays an important role in the determination of the cash balance (e.g.) Collections on accounts receivable Borrowing on accounts payable Work with reported financial statements to find cash flow. T2.4 GAAP versus Cash Flow Time Line Revenue recognized and matched expenses Sale of goods on credit Time Pay Payroll Pay Collect for checks utilities accounts raw goods issued receivable Cash flow Cash flow Cash flow Cash flow T2.5 Cash Flow Example Balance Sheet Beg End Beg End Cash $100 $150 A/P $100 $150 A/R 200 250 N/P 200 200 Inv 300 300 C/L 300 350 C/A $600 $700 LTD $400 $420 NFA 400 500 C/S 50 60 R/E 250 370 $300 $430 Total $1000 $1200 Total $1000 $1200 T2.5 Cash Flow Example (continued) Income Statement Sales $2000 Costs 1400 Depreciation 100 EBIT 500 Interest 100 Taxable Income 400 Taxes 200 Net Income $200 Dividends $__ Addition to R/E __ T2.5 Cash Flow Example (continued) Income Statement Sales $2000 Costs 1400 Depreciation 100 EBIT 500 Interest | T2.1 Chapter Outline Chapter 2 Financial Statements, Taxes, and Cash Flow Chapter Organization 2.1 The Balance Sheet 2.2 The Income Statement 2.3 Cash Flow 2.4 Taxes 2.5 Capital Cost Allowance 2.6 Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE copyright © 2002 McGraw-Hill Ryerson,Ltd. T2.2 The Balance Sheet (Figure 2.1) T2.2 The Balance Sheet Components Assets (Current & Long-Term) Liabilities (Current & Long-Term) Owners Equity Key concepts Liquidity Net Working Capital Current Assets minus Current Liabilities Debt vs. Equity Market vs. Book Value T2.3 Income Statement Components Revenues Expenses Cash and non-cash Operating and non-operating Net Income Earnings per share Dividends T2.4 Cash Flow Cash flows are essential to valuation Accounting methods give an estimate of the economic value of transactions In Finance, the main concern is the timing of cash flows. Since the income statement includes non-cash items, we will have to adjust it to get information on cash .
