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1 Chapter 2. Model for Financial Statements, Cash Flows, and Taxes

2
3 2001 2000 $1,999
4 Year-end common stock price $23.00 $26.00 $24.00
5 Year-end shares outstanding (in millions) 40 40 40
6 Tax rate 40% 40% 40%
7 After-tax cost of capital 11.0% 10.3% 10.0%
8
9 BALANCE SHEETS - Allied Food Products - December 31
10 (in millions of dollars)
11 $2,001 $2,000 $1,999
12 Assets
13 Cash and marketable securities $5 $53 $10
14 Accounts receivable $370 $305 $355
15 Inventories $610 $405 $435
16 Total current assets $985 $763 $800
17 Net plant and equipment $995 $860 $800
18 Total assets $1,980 $1,623 $1,600
19
20 Liabilities and equity
21 Accounts payable $50 $20 $20
22 Notes payable $115 $33 $80
23 Accruals $135 $120 $100
24 Total current liabilities $300 $173 $200
25 Long-term bonds $749 $570 $600
26 Total debt $1,049 $743 $800
27 Preferred stock (400,000 shares) $40 $40 $40
28 Common stock (40,000,000 shares) $130 $130 $130
29 Retained earnings $761 $710 $630
30 Total common equity $891 $840 $760
31 Total liabilities and equity $1,980 $1,623 $1,600
32
33 INCOME STATEMENTS - Allied Food Products - Years Ending December 31
34 (in millions of dollars)
35 $2,001 $2,000 $1,999
36
37 Net sales $2,995 $2,840 $2,800
38 Operating costs except depreciation $2,611 $2,487 $2,400
39 Earnings before interest, taxes, deprn, and amortization (EBITDA)*$384 $353 $400
40 Depreciation $95 $80 $60
41 Earnings before interest and taxes (EBIT) $289 $273 $340
42 Less interest $83 $50 $45
43 Earnings before taxes (EBT) $206 $223 $295
44 Taxes $82 $89 $118
45 Net Income before preferred dividends $124 $134 $177
46 Preferred dividends $4 $4 $4
47 Net Income available to common stockholders $119.6 $129.8 $173.0
48
49 Common dividends $52 $50 $60
50 Addition to retained earnings $68 $80 $113
51
52 PER-SHARE DATA
53 2001 2000 1999
54 Earnings per share (EPS) $2.99 $3.25 $4.33
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55 Dividends per share (DPS) $1.30 $1.25 $1.50
56 Book value per share (BVPS) $22.28 $21.00 $19.00
57
58
59 STATEMENT OF RETAINED EARNINGS - Allied Food Products (2001)
60 2001 2000
61 Balance of Retained Earnings, Dec. 31, 2000 $710 $630
62 Add: Net Income, 2001 $120 $130
63 Less: Dividends to common stockholders -$52 -$50
64 Balance of Retained Earnings, Dec. 31, 2001 $778 $710
65
66
67 STATEMENT OF CASH FLOWS - Allied Food Products (2001)
68
69 2001 2000
70 Operating Activities
71 Net Income before preferred dividends $124 $134
72 Additions (Sources of Cash)
73 Depreciation and amortization $95 $80
74 Increase in accounts payable $30 $0
75 Increase in accruals $15 $20
76 Subtractions (Uses of Cash)
77 Increase in accounts receivable -$65 $50
78 Increase in inventories -$205 $30
79 Net cash provided by operating activities -$6 $314
80
81 Long-term investing activities
82 Cash used to acquire fixed assets -$230 -$140
83
84 Financing Activities
85 Increase in notes payable $82 -$47
86 Increase in bonds $179 -$30
87 Payment of common and preferred dividends -$56 -$54
88 Net cash provided by financing activities $205 -$131
89 Net change in cash and marketable securities -$31 $43
90 Cash and securities at beginning of the year $53 $10
91
92 Cash and securities at end of the year $22 $53
93
94 Calculate NOPAT, NOWC, Total operating capital, Net Cashflow, Operating cashflow,
95 Free cashflow, EVA and MVA using the data provided in the above statements.
96 Discuse about the performance of the manager on the bases of above ratios.
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97
98 SUMMARY DATA - Relating to Operating Performance and Cash Flows
99 2001 $2,000 $1,999
100 Net operating working capital (NOWC) $800.0 $623 $680
101 Total operating capital $1,795.0 $1,483 $1,480
102 Net Operating Profit After Taxes (NOPAT) $173.4 $164 $204
103 Net Cash Flow (NCF) $214.6 $210 $233
104 Cash Flow Per Share (CFPS) $5.37 $5 $6
105 Operating Cash Flow (OCF) $268.4 $244 $264
106 Free Cash Flow (FCF) ($138.6) $160.8 -
107 Economic Value Added, EVA (in millions of dollars) -$24 $11 $56
108 Market Value Added, MVA (in millions of dollars) $29 $200 $200
109