Scribd
Upload
248 views11 pages

Understanding Financial Statements, Taxes, and Cash Flows: Income Statement Balance Sheet Taxes Free Cash Flow (FCF)

The document discusses financial statements including the income statement, balance sheet, and cash flows. It explains key components of each including sales, expenses, assets, liabilities, equity, taxes, debt, and free cash flow.

Uploaded by

Rejean Dela Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
248 views11 pages

Understanding Financial Statements, Taxes, and Cash Flows: Income Statement Balance Sheet Taxes Free Cash Flow (FCF)

The document discusses financial statements including the income statement, balance sheet, and cash flows. It explains key components of each including sales, expenses, assets, liabilities, equity, taxes, debt, and free cash flow.

Uploaded by

Rejean Dela Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 11

Understanding Financial Statements, Taxes, and

Cash Flows
■ Income Statement
■ Balance Sheet
■ Taxes
■ Free Cash Flow (FCF)

1
Income Statement
SALES •Cost of Goods Sold
– EXPENSES •Operating Expenses
(marketing, administrative)
= PROFIT
•Financing Costs
•Taxes

2
Income Statement (Continued)
SALES
– Cost of Goods Sold
= GROSS PROFIT Operating Activities
– Operating Expenses
= OPERATING INCOME (EBIT)
– Interest Expense
= EARNINGS BEFORE TAXES (EBT)
– Income Taxes
= EARNINGS AFTER TAXES (EAT) Financing Activities
– Preferred Stock Dividends
= NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
3
Balance Sheet
Total Assets = Outstanding Debt + Shareholders’ Equity

Assets Liabilities and Shareholders’ Equity


Current Assets Current Liabilities
Cash Accounts Payable
Marketable Securities Accrued Expenses
Accounts Receivable Short-term notes
Inventories Long-Term Liabilities
Prepaid Expenses Long-term notes
Fixed Assets Mortgages
Machinery & Equipment Equity
Buildings and Land Preferred Stock
Other Assets Common Stock (Par value)
Investments & patents Paid in Capital
Retained Earnings
4
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.
■ Fixed Assets: machinery and equipment,
buildings, and land
■ Other Assets: any asset that is not a current asset
or fixed asset
■ Intangible assets such as patents and copyrights
5
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

6
Financing (Continued)
■ 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

7
Corporate Tax Rates
Taxable Income Corporate Tax Rate
$1 - $50,000 15%
$50,001 - $75,000 25%
$75,001 - $100,000 34%
$100,001 - $335,000 39%
$335,001 - $10,000,000 34%
$10,000,001 - $15,000,000 35%
$15,000,001 - $18,333,333 38%
over $18,333,333 35%
8
Free Cash Flow (FCF)
■ Free Cash Flow: cash flow that is free and available to be
distributed to the firm’s investors (both debt and equity
investors)
■ Firm’s Operating Free Cash Flow should be equal to
Firm’s Financing Free Cash Flow
■ Operating Free Cash Flow: Cash flows generated through
the firm’s operations and investments in assets
■ Financing Free Cash Flow: Cash flows paid to – or
received by – the firm’s investors (creditors &
stockholders)
9
Operating Free Cash Flow
■ Operating Cash Flow (OCF) = EBIT + Depreciation – Taxes
■ Change in NWC (ΔNWC) = Ending NWC – Beginning NWC
■ NWC = Net Working Capital = Current Assets – Current Liabilities
■ Note that the Current Liabilities exclude interest bearing Current Liabilities
■ Net Capital Spending (NCS) = Ending NFA – Beginning NFA +
Depreciation
■ NFA = Net Fixed Assets
■ Note that if you are given gross value of Fixed Assets (FA) then the Net
Capital Spending is the difference between Ending FA and Beginning FA
■ Operating Free Cash Flow (OFCF) = OCF – ΔNWC – NCS

10
Financing Free Cash Flow
■ Cash Flow to Creditors (CFC) = Interest Paid – Net New
Borrowing
■ Net New Borrowing = (Ending LTD + Ending Interest Bearing Current
Liabilities) – (Beginning LTD + Beginning Interest Bearing Current
Liabilities)
■ LTD = Long-Term Debt
■ Cash Flow to Shareholders (CFS) = Dividend Paid – Net New
Equity
■ Net New Equity = Ending Common Stock – Beginning Common Stock
■ Common Stock excludes Retained Earnings
■ Addition to Retained Earnings = Net Income – Dividends Paid
■ Financing Free Cash Flow (FFCF) = Cash Flow to Creditors +
Cash Flow to Shareholders
11

You might also like