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FINC 330 Lecture Notes - Lecture 1: Cash Flow Statement, Cash Flow, Income Statement

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mauvegoldfish864
11 Feb 2020
School
Mercy College
Department
Finance
Course
FINC 330
Professor
Hattie Martin

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Document Summary

A company"s legal financial debt or obligations that arise during the course of business operations. What your business is worth minus (-) what you owe on it; [assets liabilities]. The income that a business has from its normal business activities, usually from the sale of goods and services to customers. The cost of operations that a company incurs to generate revenue. Summarizes the revenues, costs, and expenses incurred during a specified period. Provides information about a company"s ability or inability to generate profit by increasing revenue, reducing costs, or both. O is for operating activities that businesses engage in daily to increase the value of the enterprise and earn a profit. I is for investing the act of allocating funds to an asset or committing capital to an endeavor (a business, project, real estate, etc. )

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Related Questions

1. Discuss the importance of financial statements and how they are used by businesses.

2. What is the basic format of the income statement and what is the relevance of the basic categories?

3. Cash flows for an organization come from operating activities and investment activities. Discuss the importance of each to the organization.

The Happy Auto Shop has the following annual information:

Gross Sales

$700,000

Net sales

$696,000

Gross profit

$448,000

What are the shop’s returns and allowances and cost of goods sold?

Construct a statement of financial position (balance sheet) for the Humperdink family using the following information:

cash

$50

Checking account

$2,500

student loan balance

$6,000

stocks and bonds

$2,600

savings account

$5,850

residence

$110,000

automobile

$12,000

savings account

$5,800

automobile loan balance

$12,000

401K retirement account

$15,000

furniture, clothing, jewelry

$8,000

credit card balance

$4,000

mortgage loan balance

$99,000

What is the purpose of financial statement analysis? How do the three types of financial statement analysis differ from each other and when is each used?

Samantha Knight is applying for a small-business loan. She provides the bank with the following information:

cash in checking accounts

$5,000

cash in savings

$10,350

home market value

$145,500

first mortgage on house

$25,000

home equity loan limit

$70,000

home equity loan

$10,000

automobile market value

$19,000

automobile loan outstanding

$15,000

credit card debt

$1,500

Calculate the debt-to-asset ratio.

Calculate the debt-to-equity ratio.

What percentage of Samantha's assets is owned by others?

Given the profit loss (income statement) and balance sheet for Sam's Sandwich Delivery (Table 4-8, page 121 of your textbook), answer the following:

Calculate the following ratios: current, quick, accounts receivable turnover, fixed asset turnover.

Using the inventory figure on the balance sheet as average inventory, calculate the inventory turnover ratio.

Calculate the debt-to-equity ratio, debt-to-total asset ratio, and operating profit margin ratio.

Perform a vertical analysis of the income statement.

Perform a vertical analysis of the balance sheet.

Based on your analysis, would you consider investing in Sam's Sandwich Delivery?

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 5,500
Cost of goods sold 4,950
EBIT $ 550
Interest 110
Earnings before taxes $ 440
State and federal tax 176
Net income $ 264
Dividends 176
Additions to retained earnings $ 88
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 550
Fixed assets 2,200
Total assets $ 2,750
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,650
Total liabilities and shareholders' equity $ 2,750

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 6,050
Cost of goods sold 5,445
EBIT $ 605
Interest 110
Earnings before taxes $ 495
State and federal tax 198
Net income $ 297
Dividends 198
Additions to retained earnings $ 99
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 2,849
Required external financing $ 176
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,276
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 3,025

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 4,000
Cost of goods sold 3,600
EBIT $ 400
Interest 80
Earnings before taxes $ 320
State and federal tax 128
Net income $ 192
Dividends 128
Additions to retained earnings $ 64
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 400
Fixed assets 1,600
Total assets $ 2,000
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,200
Total liabilities and shareholders' equity $ 2,000

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 4,400
Cost of goods sold 3,960
EBIT $ 440
Interest 80
Earnings before taxes $ 360
State and federal tax 144
Net income $ 216
Dividends 144
Additions to retained earnings $ 72
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,072
Required external financing $ 128
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 928
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,200

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $