Financial Planning and Appraisals
Case 1 Four Financial Statements
3-2 The Balance Sheet
Balance sheet
A = L + OE
Common stock is more risky than bonds
Balance sheet
2008 2007
Assets
current assets:
CASH cash and equivalents $$$$ $$$$
acc REC accounts receivable $$$$ $$$$
INV inventories $$$$ $$$$
TOTAL Total current assets = = =
Net fixed assets:
net plants and equipment ( -
Plnt + equi depreciation) $$$$ $$$$
other assets expected to
other last more than a year $$$$ $$$$
TOTAL Total assets = = =
Liabilities and Equity
current liabilities:
acc PAY accounts payable $$$$ $$$$
ACCRU accruals $$$$ $$$$
Notes pay notes payable $$$$ $$$$
TOTAL Total current liabilities = = =
LT Bonds Long-term bonds $$$$ $$$$
TOTAL total debt = = =
Common equity:
Co STOCK common stock $$$$ $$$$
1
,Re Ea retained earnings $$$$ $$$$
TOTAL Total Common equity = = =
TOTAL Total liabilities and equity= = =
3-3 The Income Statement
Income statement
2008 2007
Sales
Cost Net Sales
Operating costs except
EBIT DA Depreciation & Amortization $$$$ $$$$
(DA) Depreciation & Amortization $$$$ $$$$
Total Operating costs = = =
EBIT Operating income $$$$ $$$$
(I) less interest $$$$ $$$$
EBT Earnings before taxes = =
(T) taxes (??%) $$$$ $$$$
NI Net Income = =
Related items:
Total dividends $$$$ $$$$
addition to retained earnings $$$$ $$$$
Per-share data:
Common stock $$$$ $$$$
EPS Earnings per share $$$$ $$$$
DPS Dividends per share $$$$ $$$$
BVPS Book value per share $$$$ $$$$
How to calculate different aspects in the income statement
T = % (given) of EBT
DA = % (given) of fixed assets
Fixed assets = plant, property, and equipment
Net income = dividend for shareholder + retained earnings
The income statement is tied to the balance sheet through the retained earnings
account on the balance sheet. Net income – dividends paid = retained earnings
for the year. Those retained earnings are added to the cumulative retained
earnings form prior years to obtain the year-end balance of retained earnings.
2
, Amortization schedule
Interest expense in the income statement = PMT
Year Begin PMT Interest Re- End
balance payment balance
1 BS loan =% of PMT – Begin
debt begin interest balance –
balance repayment
2
3
4
PMT= Beginning amount
((1-1/1+i)^n/i)
3-4 Statement of Cash Flows
Statement of Cash Flows
2008
1. Operating Activities
Net income $$$$
Depreciation & Amortization $$$$
Increase in inventories ($$$$)
Increase in accounts receivable ($$$$)
Increase in accounts payable $$$$
Increase in accrued wages and taxes $$$$ (or)
Net cash provided (used) - operating activities =
2. Long-Term Investing activities
additions to property, plant, and equipment ($$$$)
Net cash used in investing activities =
3. Financing Activities
increase in notes payable $$$$
Increase in bonds outstanding $$$$
payment of dividends to stockholders ($$$$)
Net cash provided by financing activities =
4. Summary
Net decrease in cash (net sum of 1,2,3) ($$$$)
Cash and equivalents at the beginning of the year $$$$
cash and equivalents at the end of the year =
Cash and equivalents at the end of the year is the same as cash on the balance sheet
of the following year.
3
Case 1 Four Financial Statements
3-2 The Balance Sheet
Balance sheet
A = L + OE
Common stock is more risky than bonds
Balance sheet
2008 2007
Assets
current assets:
CASH cash and equivalents $$$$ $$$$
acc REC accounts receivable $$$$ $$$$
INV inventories $$$$ $$$$
TOTAL Total current assets = = =
Net fixed assets:
net plants and equipment ( -
Plnt + equi depreciation) $$$$ $$$$
other assets expected to
other last more than a year $$$$ $$$$
TOTAL Total assets = = =
Liabilities and Equity
current liabilities:
acc PAY accounts payable $$$$ $$$$
ACCRU accruals $$$$ $$$$
Notes pay notes payable $$$$ $$$$
TOTAL Total current liabilities = = =
LT Bonds Long-term bonds $$$$ $$$$
TOTAL total debt = = =
Common equity:
Co STOCK common stock $$$$ $$$$
1
,Re Ea retained earnings $$$$ $$$$
TOTAL Total Common equity = = =
TOTAL Total liabilities and equity= = =
3-3 The Income Statement
Income statement
2008 2007
Sales
Cost Net Sales
Operating costs except
EBIT DA Depreciation & Amortization $$$$ $$$$
(DA) Depreciation & Amortization $$$$ $$$$
Total Operating costs = = =
EBIT Operating income $$$$ $$$$
(I) less interest $$$$ $$$$
EBT Earnings before taxes = =
(T) taxes (??%) $$$$ $$$$
NI Net Income = =
Related items:
Total dividends $$$$ $$$$
addition to retained earnings $$$$ $$$$
Per-share data:
Common stock $$$$ $$$$
EPS Earnings per share $$$$ $$$$
DPS Dividends per share $$$$ $$$$
BVPS Book value per share $$$$ $$$$
How to calculate different aspects in the income statement
T = % (given) of EBT
DA = % (given) of fixed assets
Fixed assets = plant, property, and equipment
Net income = dividend for shareholder + retained earnings
The income statement is tied to the balance sheet through the retained earnings
account on the balance sheet. Net income – dividends paid = retained earnings
for the year. Those retained earnings are added to the cumulative retained
earnings form prior years to obtain the year-end balance of retained earnings.
2
, Amortization schedule
Interest expense in the income statement = PMT
Year Begin PMT Interest Re- End
balance payment balance
1 BS loan =% of PMT – Begin
debt begin interest balance –
balance repayment
2
3
4
PMT= Beginning amount
((1-1/1+i)^n/i)
3-4 Statement of Cash Flows
Statement of Cash Flows
2008
1. Operating Activities
Net income $$$$
Depreciation & Amortization $$$$
Increase in inventories ($$$$)
Increase in accounts receivable ($$$$)
Increase in accounts payable $$$$
Increase in accrued wages and taxes $$$$ (or)
Net cash provided (used) - operating activities =
2. Long-Term Investing activities
additions to property, plant, and equipment ($$$$)
Net cash used in investing activities =
3. Financing Activities
increase in notes payable $$$$
Increase in bonds outstanding $$$$
payment of dividends to stockholders ($$$$)
Net cash provided by financing activities =
4. Summary
Net decrease in cash (net sum of 1,2,3) ($$$$)
Cash and equivalents at the beginning of the year $$$$
cash and equivalents at the end of the year =
Cash and equivalents at the end of the year is the same as cash on the balance sheet
of the following year.
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