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Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,2-,1,Copyright 2001 by Harcourt,Inc.All rights reserved.,Balance sheet,Income statement,Statement of cash flows,Accounting income vs.cash flow,MVA and EVA,Personal taxes,Corporate taxes,CHAPTER 2,Financial Statements,Cash Flow,and Taxes,Balance Sheet:Assets,Cash,7,282,57,600,AR,632,160,351,200,Inventories,1,287,360,715,200,TotalCA,1,926,802,1,124,000,GrossFA,1,202,950,491,000,Less:Deprec.,263,160,146,200,Net FA,939,790,344,800,TotalAssets,2,866,592,1,468,800,2000,1999,Liabilitiesand Equity,2000,1999,Acctspayable,524,160,145,60,Notespayable,720,000,200,000,Accruals,489,600,136,000,TotalCL,1,733,760,481,600,Long-term debt,1,000,000,323,432,Commonstock,460,000,460,000,Retained earnings,(327,168),203,768,Totalequity,132,832,663,768,TotalL&E,2,866,592,1,468,800,IncomeStatement,Sales,5,834,400,3,432,000,COGS,5,728,000,2,864,000,Otherexpenses,680,00,0,340,000,EBITDA,(573,600),228,000,Depr.&Amort.,116,960,18,900,EBIT,(690,560),209,100,Interest exp.,176,000,62,500,EBT,(866,560),146,600,Taxes(40%),(346,624),58,640,Net income,(519,936),87,960,2000,1999,OtherData,No.ofshares,100,000,100,000,EPS,($5.199),$0.88,DPS,$0.110,$0.22,Stockprice,$2.25,$8.50,Leasepmts,$40,000,$40,000,2000,1999,Statement ofRetained Earnings(2000),Balance of retained,earnings,12/31/99$203,768,Add:Netincome,2000(519,936),Less:Dividendspaid(11,000),Bala,nc,eofr,et,ained,earnings,12/31/00($327,168),(523,936),StatementofCashFlows(2000),OPERATINGACTIVITIES,Netincome,(519,936),Add(S,ou,rcesofcash):,Depreciation,116,960,IncreaseinA/P,378,560,Increaseinaccruals,353,600,Subtract(Usesofcash):,IncreaseinA/R,(280,960),Increaseininventories,(,572,160,),Netca,sh,p,L-TINVESTINGACTIVITIES,Invest,me,nt,infixedassets,(711,950),FINANCING ACTIVITIES,Increase in notes payable,520,000,Increase in long-termdebt,676,568,Paymentof cash dividends,(11,000),Net cash fromfinancing,1,185,568,NET CHANGE INCASH,(50,318),Plus:Cash atbeginning of year,57,600,Cash atend ofyear,7,282,Net cash fromoperations=-$523,936,mainly because ofnegative NI.,The firm borrowed$1,185,568to meet its c,ash req,uirements.,Even after borrowing,the cash account fell by$50,318.,What can you concludeaboutDLeons financial conditionfrom its statement of CFs?,Did theexpansion cre,ate add,itionalnet operating,profit,after,taxes(,NOPAT)?,NOPAT=EBIT(1,Taxrate),NOPAT,00,=-$690,560(1,0.4),=-$690,560(0.6),=-$414,336.,NOPAT,99,=$125,460.,What effect did the expansion haveon,net operatingworkingcapital(NOWC)?,NOWC,=,Current,assets,Non-interest,bearingCL,NOWC,00,=($7,282+$632,160+$1,287,360),($524,160+$489,600),=,NOWC,99,=,$842,400.,What effect did the expansion haveon capital used in operations?,Operati,ng,capital,=,NOWC+Net fixed assets.,=$913,042+$939,790,=$1,852,832.,=$1,187,200.,Operating,capital,00,Operating,capital,99,What isyour initialassessment ofthe expansions effect on operations?,20001999,Sales$5,834,400$3,432,000,NOPAT($414,336)$125,460,NOWC$913,042$842,400,Operating capital$1,852,832$1,187,200,Net Income($519,936)$87,960,What effect did the companys expansion have on its netcash flow andoperating cashflow?,NCF,00,=NI+DEP=($519,936)+$116,960,=($402,976).,NCF,99,=$87,960+$18,900=$106,860.,OCF,00,=NOPAT+DEP,=($414,336)+$116,960,=($297,376).,OCF,99,=$125,460+$18,900,=$144,360.,What was the free cash flow(FCF)for 2000?,FCF=NOPAT Net capital investment,=-$414,336($1,852,832$1,187,200),=-$414,336$665,632,=-$1,079,968.,Is negative free cashflow always abad,sign?,Economic ValueAdded(EVA),EVA=,=,=NOPAT,After-TaxCostof Capital,Operating IncomeAfter Tax,After-TaxCapital Costs,Funds Availableto Investors,Cost ofCapital Used,In order to generatepositive EVA,a firmhas tomore than justcoveroperating costs.Itmust also provide a return to thosewho have provided the firmwith capital.,EVA takes intoaccount thetotal cost ofcapital,whichincludes thecost ofequity.,EVA Concepts,What isthe companysEVA?,Assumethe firms after-taxcost ofcapital was11%in1999,and 13%in 2000.,EVA,00,=NOPAT,(A-T cost of capital)(Capital),=-$414,336(0.13)($1,852,832),=-$414,336$240,868,=-$655,204.,EVA,99,=$125,460 (0.11)($1,187,200),=$125,460$130,592,=-$5,132.,Would you conclude that,the expansionincreased or,decreased MVA?,MVA=,Marketvalue,of equity,Equitycapital,supplied,Duringthe last yearstock price has decreased 73%,so market value ofequityhas declined.Consequently,MVA has declined.,CompanyMarket Value Added,Microsoft$328,257 million,GeneralElectric$285,320 million,Intel$166,902million,Wal-Mart Stores$159,444 million,Coca-Cola$157,536 million,Merck$153,170million,Pfizer$148,245 million,Cisco Systems$135,650million,LucentTechnologies$127,265 million,Bristol-MyersSquibb$119,350 million,LeadingCreators of Wealth in the U.S.,MarketValue Added in1999,Probably not.,A/Pincreased 260%overthepastyear,whilesalesincreasedbyonly70%.,Ifthis continues,suppliers maycutoff D,Leons trade credit.,Does D,Leonpayits suppliersontime?,No,thenegativeNOP
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