Financial Statement and Cash Flow Analysis Essay Sample

Used to calculate out how much money we are gaining for: ( a ) ( B ) ( degree Celsius ) ( vitamin D ) sellers. employees. etc – Cost of Goods Sold. Operating Expenses loaners. bondholders – Interest. authorities – Taxes. owners/stockholders – Dividends/Retained Net incomes Gross saless ( – ) Cost of Goods Sold ( – ) Operating Expenses ( – ) Depreciation EBIT ( – ) Interest EBT ( – ) Taxes Net Income ( – ) Dividends Additions to R/E grosss cost to fabricate merchandise general disbursals write offing fixed assets net incomes before int. and revenue enhancements to bondholders net incomes before revenue enhancements rate set by authorities payout or retain payout retain

Statement of Cash Flows Cash Flow from Operations: Net income ( I/S ) + depreciation ( I/S ) – additions in current assets ( B/S ) + additions in current liabilities ( B/S ) Cash Flow from Investings: – investings in PPE ( B/S ) + sale of assets ( B/S ) Cash Flow from Financing: + returns from issues of common stock or debt ( B/S ) – payment of dividends ( I/S ) – redemption of common stock ( B/S ) – refund of debt ( B/S ) Net increase/decrease in Cash Account MicroDrive. Inc: Balance Sheet ( 1000000s of dollars ) Assets Cash and equivalents ST investings Accounts receivable Inventories Total current assets Gross works and fit Accumulate Depr Net works and fit 2008 $ 10 0 375 615 $ 1. 000 1. 400 -400 $ 1. 000 2007 $ 15 65 315 415 $ 810 1. 230 Liabilities and Equity Accounts collectible Notes collectible Accruals Total current liabilities Long-term bonds Total liabilities 2008 $ 60 110 140 $ 310 754 $ 1. 064 40 130 766 $ 896 $ 2. 000 2007 $ 30 60 130 $ 220 580 $ 800 40 130 710 $ 840 $ 1. 680

MicroDrive. Inc: Income Statement ( 1000000s of dollars )
2008 Net gross revenues Cost of goods sold Administration disbursals Net incomes before int. . revenue enhancements. depr. . amort. . ( EBITDA ) Depreciation Amortization Earnings before int. and revenue enhancements ( EBIT ) Less: Interest Net incomes before revenue enhancements ( EBT ) Taxes ( 40 % ) Net income before preferable dividends Preferable dividends Net income Common dividends Additions to retained net incomes Calculations of EPS. DPS. BVPS. and CFPS for 2008 ( based on 50. 000 portions outstanding ) Net incomes per portion = EPS = Net income Common portions O/S = $ 113. 500. 000 50. 000. 000 $ 57. 500. 000 50. 000. 000 = = = = $ 2. 27 $ 1. 15 $ 17. 92 $ 4. 27 $ 3. 000. 0 1. 284. 5 1. 331. 7 $ 383. 8 100. 0 0. 0 $ 283. 8 88. 0 $ 195. 8 78. 3 $ 117. 5 4. 0 $ 113. 5 $ 57. 5 $ 56. 0 2007 $ 2. 850. 0 1. 211. 6 1. 285. 4 $ 353. 0 90. 0 0. 0 $ 263. 0 60. 0 $ 203. 0 81. 2 $ 121. 8 4. 0 $ 117. 8 $ 53. 0 $ 64. 8

Dividends per portion = DPS = Book value per portion = BVPS = Cash Flow per portion = CFPS =

Dividends to C/S = Common portions O/S Total common equity Common portions O/S NI + Depr + Amort Common portions O/S

$ 896. 000. 000 = 50. 000. 000 $ 213. 500. 000 = 50. 000. 000

Stock Price = $ 23. 80 Average analysts expected growing prognosis for EPS is 7 % per twelvemonth

MicroDrive. Inc: Statement of Retained Net incomes ( 1000000s of dollars ) Balance of maintained net incomes. 12/31/07 Add: Net income. 2008 Less: Dividends to common shareholders Balance of maintained net incomes. 12/31/08 MicroDrive. Inc: Statement of Cash Flows ( 1000000s of dollars ) Cash provided or uses Operating Activities Net income before preferable dividends Adjustments Noncash accommodations Depreciation Due to alterations in working capital Increase in histories receivable Increase in stock lists Increase in histories collectible Increase in accurals Net hard currency provided by runing activities Long-Term Investing Activities Cash used to get fixed assets Financing Activities Sale of short-run investings Increase in notes collectible Increase in bonds outstanding Payment of P/S and C/S dividends Net hard currency provided by funding activities $ 65. 0 50. 0 174. 0 ( 61. 5 ) $ 227. 5 ( $ 230. 0 ) ( 60. 0 ) ( 200. 0 ) 30. 0 10. 0 ( $ 2. 5 ) $ 117. 5 100. 0 $ 710. 0 113. 5 ( 57. 5 ) $ 766. 0

Drumhead Net alteration in hard currency Cash at beginning of twelvemonth Cash at terminal of twelvemonth ( $ 5. 0 ) 15. 0 $ 10. 0

Cash Flow Analysis Earnings before Interest. Taxes. Depreciation. and Amortization ( EBITDA ) Cash Flow available to bondholders. to pay authorities. and to fund plus purchase. Adds back in noncash points. Net Operating Working Capital = Operating Current Assets – Operating Current Liabilities Operating = those flows from normal operations Operating Current Assets = Cash. A/R. Inv Operating Current Liabilities = A/P. Accumulations Net Operating Net income after Taxes ( NOPAT ) = EBIT ( 1 – revenue enhancement rate ) Free Cash Flow ( FCF ) = NOPAT – Net investing in runing capital Net investing in runing capital = – alteration in current assets ( runing ) + alteration in current liabilities ( runing ) – alteration in net capital assets Current plus addition represents an investing Current liability addition represents borrowing Net capital assets = Increase in PPE – Depreciation Market Value Added ( MVA ) Consistent with stockholder wealth maximization MVA = market value of common stock – initial value of equity capital illustration: Google. Inc. Google went public ( IPO ) on August 19. 2004 at $ 85 per portion Google stock value on June 16. 2008 was $ 366. 00 Shares Outstanding = 1. 2B MVAGOOG = $ 439. 2B – $ 102B = $ 337. 2B

Economic Value Added ( EVA ) EVA = NOPAT ( After-tax dollar cost of capital used to back up operations )

After-tax dollar cost of capital used to back up operations = ( net runing working capital + cyberspace works and equipment ) * WACC = ( sum spent on B/S ) * ( cost of raising money ) “EVA is net runing net income subtraction an appropriate charge for the chance cost of all capital invested in an enterprise” hypertext transfer protocol: //www. sternstewart. com/ “EVA is the existent return from the company’s assets in topographic point less the cost of raising the money to buy those assets. In other words. the existent net dollar return from the assets reported on the balance sheet” Michael Sullivan

Analyzing Financial Performance utilizing Ratio Analysis
Five major countries to analyse. ( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 5 ) Liquidity Position Management of Assets Management of Debt Company’s Profitability Market’s View of Company

( 1 ) ( a )

Liquidity Ratios – usage to look into the relationship between a firm’s current ( shortterm ) assets and current ( short-run ) liabilities. Current Ratio = Current Assets Current Liabilities = 1. 000 = 310 3. 23x

Quick Ratio = Current Assets – Inventory Current Liabilities = 1. 000 – 615 = 310

3. 23x

( 2 ) ( a ) ( B )

Asset Management Ratios – Use to measure how expeditiously direction employs assets. Inventory = Turnover Days Gross saless Outstanding Fixed Asset = Turnover Total Asset = Turnover = Cost of Goods Sold Inventory = 1. 284. 5 = 2. 09x 615 375 = 45 yearss 3. 000/360 3. 000 = 3. 0x 1. 000 3. 000 = 1. 5x 2. 000

Histories Receivable = Credit Sales/day Net Gross saless Net Fixed Assets Net Gross saless Total Assets = =

( degree Celsius ) ( vitamin D )

( 3 ) ( a )

Debt Management Ratios – usage to measure peril of company ( retrieve higher hazard equates to higher needed return ) Debt Ratio = Total Liabilities Total Assets EBIT Interest = 1. 064 = 53. 2 % 2. 000 283. 8 = 3. 23x 88

Times-Interest-Earned = ( TIE )

EBITDA Coverage

EBITDA + Lease Payments Interest + Principal + Lease Payments 383. 8 + 45 88 + 0 + 45 = 3. 22x

( 4 ) ( a )

Company’s Profitability – Are the owner’s gaining an equal return on their investing. Profit Margin = Net Income Net Gross saless = 113. 5 3. 000 = 3. 78 %

( B )

Tax return on Assetss = ( ROA )

Net Income Total Assetss

113. 5 2. 000 = 5. 68 %

Tax return on Equity = ( ROE )

Net Income = Shareholder’s Equity

113. 5 896 = 12. 66 %

( 5 ) ( a )

Market Value Ratios – usage to find how market views company PE Ratio = Price per portion EPS = 23. 80 = 10. 48 2. 27

( B )

PEG Ratio =

PE Ratio vitamin E ( gEPS ) Price Book Value

10. 48 = 1. 50 7. 0 23. 80 = 1. 33 17. 92

Market to Book = Ratio

Du Pont Analysis
The DuPont equation provides us a method to measure the constituents that make up ROE. ROE = Net Income = Shareholder’s Equity 113. 5 = 12. 66 % 896

ROE = ( ROA ) * ( Equity Multiplier ) remember: ROA = Net Income Total Assets = 113. 5 2. 000 = = 5. 68 %

Equity Multiplier = Total Assets Shareholder’s Equity

2. 000 896 = 2. 23

shows the plus base supported by common equity ; high equity multiplier shows a batch of hazard or may be due to low market value relative to book value.

ROE = ROE = 12. 66 % =

( ROA ) Net Income Total Assets 5. 68 %

( Equity Multiplier ) Total Assets S/E 2. 23

ROA = ( gain border ) * ( entire plus turnover ) . where: Net income Margin = Net Income Net Gross saless Net Gross saless Total Assets = 113. 5 = 3. 78 % 3. 000 3. 000 2. 000 = 1. 5

Entire Asset Employee turnover

Extended DuPont Equation may be most good to utilize as analysis tool. ROE = PROFIT * MARGIN TOTAL * ASSET TURNOVER * * EQUITY MULTIPLIER Total Assets S/E 2. 23

ROE = 12. 66 % =

Net Income * Net Gross saless Net Gross saless Total Assets 3. 78 % * 1. 5

ROE is separated into profitableness of each $ of gross revenues ( gain border ) . efficiency of plus direction ( entire plus turnover ) . and company hazard ( equity multiplier ) . Can now acquire insight into whether company’s return is due to high profitableness. good direction. or compensation for hazard.

Keies to utilizing Ratio Analysis
( 1 ) ( 2 ) ( 3 ) Compare ratios to industry Look at tendency of ratios over clip Be aware of the restrictions in utilizing ratio analysis

LIMITATIONS TO RATIO ANALYSIS ( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 5 ) ( 6 ) ( 7 ) Difficult to suit pudding stone into specific industry – or company makeup may alter over clip. Focus on some ‘important’ ratios may adversely consequence overall house public presentation. Timing of hard currency flows affect balances in histories. Window Dressing Techniques – make ratios appear better than they are to better visual aspect of the company ( fool investors ) . Different Accounting Methods No absolutes – high/low does non ever intend good/bad or bad/good. Industry norms may be distorted if all company’s in industry really good or really bad.