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Formulas

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Submitted By shane112
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Analysis for financial management (Robert C. Higgins)
Summary of the used chapters in the lecture (WM0609LR)
Written by: Joris Van Gestel

Chapter 1 Interpreting financial statements
Accounting
Information provided by 3 annual reports:
Balance Sheet
Cash-Flow statement
Income statement

Figure 1 Cash flow­production cycle

(Operating) working capital: movement of cash into inventory
Investment: flow from cash into new fixed assets
Depreciation: the loss in value of fixed assets ⇒ increase in value of merchandise made + needed for growth Solvency: ability to have cash to buy fixed assets and inventory (outflow cash)

Financial statements: Balance sheet

The balance sheet
Equity= assets - liabilities current assets

current liabilities cash !

inventories

!

acc receivable

!

equipment

!

plant

accounts payable !

!

fixed assets

long-term liabilities long-term debt

!

total shareholders equity stock !

retained earnings !

total assets

x

total liabilities + equity

x

Figure 2 example of a balance sheet

Financial snapshot: 1 moment in time
Assets against the claims Liability: obligation to deliver something of value in the future
Equity: difference between assets and liabilities
Liquidity: speed at which an item can be turned into cash Accounting: income statement
Assets and liabilities are listed in order of decreasing liquidity
‐ Current: liquidity 1 year
Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA)
-Depreciation, Amortization
Earnings Before Interest and Taxes (EBIT)
-Interest
Earnings before taxes (EBT)
-Taxes
Net income
-Dividends
Addition to retained earnings

2

Income statement Difference between 2 important balance sheets
‐ Change in owner’s

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