...Chapter 2 Financial Statements and Cash Flow 财务报表与现金流量 2-0 Key Concepts and Skills • • • • • Understand the information provided by financial statements Differentiate between book and market values Know the difference between average and marginal tax rates Know the difference between accounting income and cash flow Calculate a firm’s cash flow 2-1 2.1 The Balance Sheet （资产负债表） An accountant’s snapshot of the firm’s accounting value at a specific point in time The Balance Sheet Identity is: Assets ≡ Liabilities + Stockholder’s Equity 2-2 U.S. Composite Corporation Balance Sheet 2-3 Alphabet Inc. - Assets Assets As of December 31, 2014 As of December 31, 2015 Current assets: Cash and cash equivalents Marketable securities Total cash, cash equivalents, and marketable securities Accounts receivable Receivable under reverse repurchase agreements Income taxes receivable, net Prepaid revenue share, expenses and other assets Total current assets Prepaid revenue share, expenses and other assets, non-current Non-marketable investments Deferred income taxes Property and equipment, net Intangible assets, net Goodwill Total assets $ 18,347 46,048 $ 16,549 56,517 64,395 9,383 11,556 875 450 591 1,903 3,412 3,139 78,656 90,114 3,187 $ 73,066 3,181 3,079 176 23,883 4,607 15,599 129,187 5,183 251 29,016 3,847 15,869 147,461 $ 2-4 Alphabet...
Words: 2843 - Pages: 12
...CHAPTER 2 – REVIEWING FINANCIAL STATEMENTS Questions LG1 1. List and describe the four major financial statements. The four basic financial statements are: 1. The balance sheet reports a firm’s assets, liabilities, and equity at a particular point in time. 2. The income statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time—generally one year. 3. The statement of cash flows shows the firm’s cash flows over a given period of time. This statement reports the amounts of cash that the firm generated and distributed during a particular time period. The bottom line on the statement of cash flows―the difference between cash sources and uses―equals the change in cash on the firm’s balance sheet from the previous year’s cash account balance. 4. The statement of retained earnings provides additional details about changes in retained earnings during a reporting period. This financial statement reconciles net income earned during a given period and any cash dividends paid within that period on one side with the change in retained earnings between the beginning and ending of the period on the other side. LG1 2. On which of the four major financial statements (balance sheet, income statement, statement of cash flows, or statement of retained earnings) would you find the following items? a. earnings before taxes - income statement b. net plant and equipment - balance sheet ...
Words: 9316 - Pages: 38
...CHAPTER 2 – REVIEWING FINANCIAL STATEMENTS Questions LG1 1. List and describe the four major financial statements. The four basic financial statements are: 1. The balance sheet reports a firm’s assets, liabilities, and equity at a particular point in time. 2. The income statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time—generally one year. 3. The statement of cash flows shows the firm’s cash flows over a given period of time. This statement reports the amounts of cash that the firm generated and distributed during a particular time period. The bottom line on the statement of cash flows―the difference between cash sources and uses―equals the change in cash on the firm’s balance sheet from the previous year’s cash account balance. 4. The statement of retained earnings provides additional details about changes in retained earnings during a reporting period. This financial statement reconciles net income earned during a given period and any cash dividends paid within that period on one side with the change in retained earnings between the beginning and ending of the period on the other side. LG1 2. On which of the four major financial statements (balance sheet, income statement, statement of cash flows, or statement of retained earnings) would you find the following items? a. earnings before taxes - income statement b. net plant and equipment - balance sheet ...
Words: 9316 - Pages: 38
...Chapter 4 Cash Flow and Financial Planning ( Instructor’s Resources Overview This chapter introduces the student to the financial planning process, with the emphasis on short-term (operating) financial planning and its two key components: cash planning and profit planning. Cash planning requires preparation of the cash budget, while profit planning involves preparation of a pro forma income statement and balance sheet. The text illustrates through example how these budgets and statements are developed. The weaknesses of the simplified approaches (judgmental and percent-of-sales methods) of pro forma statement preparation are outlined. The distinction between operating cash flow and free cash flow is presented and discussed. Current tax law regarding the depreciation of assets and the effect on cash flow are also described. The firm’s cash flow is analyzed through classification of sources and uses of cash. The student is guided in a step-by-step preparation of the statement of cash flows and the interpretation of this statement. This chapter ties in every person’s need to set goals, estimate income, and budget expenditures to the firm’s need to effectively engage in these activities. ( Answers to Review Questions 1. The first four classes of property specified by the MACRS system categorized by the length of the depreciation (recovery) period are called 3-, 5-, 7-, and 10-years property: |Recovery Period |Definition ...
Words: 5923 - Pages: 24
...Understanding Financial Statements and Cash Flow 2 LO 1 LO 2 LO 3 LO 4 Financial Statements, Taxes, and Cash Flow W hen a company announces a “write-off,” it frequently means that the value of the company’s assets has declined. AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO: Differentiate between accounting value (or “book” value) and market value. Distinguish accounting income from cash flow. Explain the difference between average and marginal tax rates. Determine a firm’s cash flow from its financial statements. For example, in the first quarter of 2009, luxury homebuilder Toll Brothers said it was writing down $157 million in assets, much of which was a reflection of the reduced value of land the company owned. Of course, Toll Brothers was not the only homebuilder suffering. Hovnanian Enterprises announced it would take a $132 million write-off, and Centex Corp. announced a $590 million writeoff. At the same time, D. R. Horton, the largest homebuilder by volume, had a much smaller write-off of only $56 million. However, D. R. Horton had already written off $1.15 billion in the fourth quarter of 2008. So did stockholders in these homebuilders lose hundreds of millions of dollars (or more) because of the write-offs? The answer is probably not. Understanding why ultimately leads us to the main subject of this chapter: that all important substance known as cash flow. Visit us at www.mhhe.com/rwj I 22 n this chapter, we examine financial statements, taxes, and...
Words: 13247 - Pages: 53
...CHAPTER 2 – REVIEWING FINANCIAL STATEMENTS Questions LG1 1. List and describe the four major financial statements. The four basic financial statements are: 1. The balance sheet reports a firm’s assets, liabilities, and equity at a particular point in time. 2. The income statement shows the total revenues that a firm earns and the total expenses the firm incurs to generate those revenues over a specific period of time—generally one year. 3. The statement of cash flows shows the firm’s cash flows over a given period of time. This statement reports the amounts of cash that the firm generated and distributed during a particular time period. The bottom line on the statement of cash flows―the difference between cash sources and uses―equals the change in cash on the firm’s balance sheet from the previous year’s cash account balance. 4. The statement of retained earnings provides additional details about changes in retained earnings during a reporting period. This financial statement reconciles net income earned during a given period and any cash dividends paid within that period on one side with the change in retained earnings between the beginning and ending of the period on the other side. LG1 2. On which of the four major financial statements (balance sheet, income statement, statement of cash flows, or statement of retained earnings) would you find the following items? a. earnings before taxes - income statement b. net plant and equipment - balance sheet ...
Words: 9316 - Pages: 38
...Chapter 2—Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory ANS: C DIF: E REF: 2.1 Financial Statements 2. If you only knew a company’s total assets and total debt, which item could you easily calculate? a. Sales b. Depreciation c. Total equity d. Inventory ANS: C DIF: E REF: 2.1 Financial Statements 3. How do we calculate a company’s operating cash flow? a. EBIT - taxes + depreciation b. EBIT - taxes - depreciation c. EBIT + taxes + depreciation d. EBIT - Sales ANS: A DIF: E REF: 2.2 Cash Flow Analysis 4. Holding all other things constant, which of the following represents a cash outflow? a. The company sells a machine. b. The company acquires inventory. c. The company receives a bank loan. d. The company increases accounts payable. ANS: B DIF: E REF: 2.2 Cash Flow Analysis 5. Which of the following is a liquidity ratio? a. Quick ratio b. P/E- ratio c. Inventory turnover d. Equity multiplier ANS: A DIF: E REF: 2.3 Analyzing Financial Performance Using Ratio Analysis NARRBEGIN: Bavarian Sausage, Inc. Bavarian Sausage, Inc. Bavarian Sausage, Inc. posted the following balance sheet and income statement. Balance Sheet Cash Accounts Receivable Inventories Net Plant and $ 50,000 125,000 225,000 Accounts Payable Notes Payable Long-term debt $185,000 125,000 115,000 Equipment 525,000 Total Assets $925,000 Common Stock...
Words: 5588 - Pages: 23
...Introduction Many argue that the cash flow statement is the most important of the financial statements. This actually quite sound of an argument considering that once a business, particularly small and medium enterprises (SMEs), runs out of cash, it usually winds up out of business soon after. One other reason that cash flow statements are important is the comparability they offer. Cash flow statements can be used to clearly assess the health of one business from another largely because across most frameworks they are similar. Even though this is the case, the different frameworks, namely International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP), do have notable differences. These differences are significant enough to merit mentioning if only to ensure that investors are able to compare apples to apples. As mentioned earlier cash flow statements under both frameworks are very similar from the format to the content; however, the purpose of this paper is to highlight the similarities and differences by comparing both frameworks under various areas as they relate to cash flow statement preparation. Statement Preparation Methods To begin, we should address the specifics of cash flow preparation under IFRS and GAAP. Under IFRS, businesses are given the option to prepare statement of cash flows either using Direct method or Indirect method. That being said, the IFRS recommends preparing the cash flow statement using direct method but it is...
Words: 2023 - Pages: 9
...increase a firm’s cash flow because they reduce a firm’s tax bill. Depreciation for tax purposes is determined by using the modified accelerated cost recovery system (MACRS), a system used to determine the depreciation of assets for tax purposes. The time period over which an asset is depreciated is called its depreciable life. The shorter the depreciable life, the larger the annual depreciation deductions will be, and the larger will be the tax savings associated with those deductions, all other things being equal. Recovery period: The appropriate depreciable life of a particular asset as determined by MACRS. There are six MACRS recovery periods: 3, 5, 7, 10, 15, and 20 years. The operating flows are cash inflows and outflows directly related to the sale and production of the firm’s products and services. Investment flows are cash flows associated with the purchase and sale of both fixed assets and equity investments in other firms. Purchase = cash outflow Sale = cash inflow The financing flows result from debt and equity financing transactions. Noncash charge: An expense that is deducted on the income statement but does not involve the actual outlay of cash during the period; includes depreciation, amortization, and depletion. Operating cash flow (OCF): The cash flow a firm generates from its normal operations; calculated as net operating profits after taxes (NOPAT) plus depreciation. NOPAT = EBIT * (1 - T) Net operating profits after taxes (NOPAT): A firm’s...
Words: 1428 - Pages: 6
...IAS 12: Income Taxes Objective: The objective of this standard is to prescribe accounting treatment for income taxes. Scope: IAS 12 should be applied in accounting for income taxes. Income taxes include: • All domestic and foreign taxes the based on taxable profits • Taxes, such as withholding taxes, payable by a subsidiary, associate or joint venture on distributions to reporting company IAS 12 does not address: • Investment tax credit • Methods of accounting for government grant However it does address the accounting for temporary differences arising due to above. Definitions Accounting Profit is profit or loss for a period before deducting tax expense. Taxable Profit (or tax loss) is profit (or loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which it will be determined whether income taxes are payable (or recoverable). Tax Expense (or tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of current and deferred tax. i.e. tax expense (tax income) = current tax + deferred tax Current tax is the amount of income taxes payable (or recoverable) in respect of taxable profit (or tax loss) for a period. i.e. current tax = taxable profit (or tax loss) * tax rate Tax Base of an asset or liability is the amount attributed to the asset or liability for tax purposes. For e.g. Cost of an asset is 100 and depreciation is 20 but tax depreciation is 25then...
Words: 3392 - Pages: 14
...Introduction To The Income Statement This is the downloaded transcript of the video presentation for this topic. More downloads and videos are available at http://www.kgaction.com/financial-statement-analysis The Kaplan Group Commercial Collection Agency Superior Results Since 1991! www.kgaction.com! 805-541-2639 More Videos and downloads at © The Kaplan Group! http://www.kgaction.com/financial-statement-analysis © The Kaplan Group! The Kaplan Group | Introduction to The Income Statement Hi. This is Dean Kaplan. The Kaplan Group is a commercial collection agency specializing in debt collection of large business to business claims. CREDIT MANAGER SEMINARS This video series introducing you to financial statement analysis is based on the dozens of training seminars I have given to credit industry groups organized by Dun & Bradstreet, the National Association of Credit Management and Riemer Reporting Services. It is applicable to anyone wanting to learn about this topic, although on occasion I will highlight information from the perspective of credit management. 3 FINANCIAL STATEMENTS Cash Flow Statement For the Year Ended December 31, 2011 (000s) Cash Flows From Operating Activities Net Income 397 Depreciation and amortization 318 Unrealized gain on marketable securities Decrease (increase) in deferred taxes (12) Balance Sheet (44) As of December 31, 2011 (000s) Net increase (decrease)...
Words: 11649 - Pages: 47
...2: ANSWERS TO END-OF-CHAPTER QUESTIONS 2-1 The four financial statements contained in most annual reports are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. 2-2 No, because the $20 million of retained earnings would probably not be held as cash. The retained earnings figure represents the reinvestment of earnings by the firm. Consequently, the $20 million would be an investment in all of the firm’s assets. 2-3 The balance sheet shows the firm’s financial position on a specific date, for example, December 31, 2002. It shows each account balance at that particular point in time. For example, the cash account shown on the balance sheet would represent the cash the firm has on hand and in the bank on December 31, 2002. The income statement, on the other hand, reports on the firm’s operations over a period of time, for example, over the last 12 months. It reports revenues and expenses that the firm has incurred over that particular time period. For example, the sales figures reported on the income statement for the period ending December 31, 2002, would represent the firm’s sales over the period from January 1, 2002, through December 31, 2002, not just sales for December 31, 2002. 2-4 The emphasis in accounting is on the determination of accounting income, or net income, while the emphasis in finance is on net cash flow. Net cash flow is the actual net cash that a firm generates during some specified period. The...
Words: 2507 - Pages: 11
...Reformulated Cash Flow Statement Throughout the reformulation of Procter and Gamble’s Statement of Cash Flows, multiple adjustments or assumptions had to be made along the way. One of the first of these assumptions was made regarding the net cash interest. The cash interest payments are disclosed in the supplemental disclosure at the foot of the cash flow statement for $686 million, and were also disclosed in the notes. However, the cash interest receipts were not reported and the accrual number of $100 million in the income statement had to be used to calculate the net interest payments before tax. Taxes were then calculated using the statutory rate of 35%, found in Note 10 (Income Taxes), to get the net interest payments after tax of $380.9 million. Next, as discussed in the previous write up on the reformulated balance sheets and income statement, a detailed breakdown of the cash and cash equivalents account was not disclosed in the notes to the financial statements. Therefore, we classified the entire amount as a financial asset. In regards to the cash flow statement, this means that Procter and Gamble had zero investment in operating cash, and the full amount of $2611 million was included in the financing activities section of the reformulated SCF as investments in cash equivalents. However, there was a $39 million dollar effect of exchange rate changes on the cash equivalents so the number reported in the reformulated statement is $2572 million (net of this effect)...
Words: 462 - Pages: 2
...Page 8 Deferred tax assets are created when there are taxes paid or carried forward but are not yet recognized on the income statement. The amount of the deferred tax assets are calculated by taking into account the financial reporting standards for book income and the jurisdiction’s tax rules for taxable income. A deferred tax asset will only be recognized when the difference between the loss-value or depreciation of the asset is expected to offset future profit. A deferred tax liability is created as a result of temporary differences between the company’s accounting and tax carrying values, the anticipated and enacted income tax rate, and the estimated taxes payable for the current year. The liability may or may not be realized during any given year which is what makes it a deferred tax liability. Amazon is a huge company with many different parts to their balance sheet. It can be easily notices that Amazon does well at showing each item and including footnotes to fully explain their position for each item. Upon reviewing Amazon’s balance sheet there is an amount of deferred tax assets and liabilities that total 316 million in 2014 and 156 million in 2013. These deferred balances are due to the effects of temporary differences between the carrying amounts of assets, liabilities, the tax bases and are stated at the enacted tax rates which are expected to be in effect when the taxes are actually paid or recovered. These deferred tax assets and liabilities...
Words: 1566 - Pages: 7
...CHAPTER THIRTEEN The Cash Flow Statement and Decisions Review Previous chapters examined the information provided by the income statement, balance sheet, and statement of changes in owners’ equity. Fits Where This Chapter In addition, a brief introduction to the cash flow statement was provided in Chapters 2 and 3. Where This Chapter Fits This chapter examines the cash flow statement in depth and focuses on how the information provided by this important statement is used for financial decisions. Looking Ahead Chapters 14 and 15 complete an in-depth look at the Looking Ahead financial statements and how the information provided is useful for decision making. 492 The Personal View The Business View Why am I always broke? My job pays a de- The German company Siemens is a $60 cent salary, but somehow I never have billion conglomerate that manufactures cash when I need it. I get paid on the first everything from power stations to semi- of the month, but most of that goes for rent conductors. The company is known for its and food. My car payment is due on the expert cash management and earns as tenth, but I don’t get paid again until the fif- much from interest income as from manu- teenth. Once I make my car payment and facturing. It is sometimes regarded as “a pay the late charges, I’ve used up most of bank with an electronics department at- that paycheck. Then come the credit card ...
Words: 21767 - Pages: 88
