FINC-220 Lecture Notes - Lecture 2: Cash Flow, Financial Statement, Income Statement

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blackcrocodile4

1 Feb 2018

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Chapter outline: the balance sheets, the income statements, cash flows. The balance sheets: the balance sheet is a snapshot of the firm"s assets and liabilities at a given point in time. Assets: assets are listed in order of decreasing liquidity, liquidity is the ease of conversion to cash without significant loss of value, a stock in my portfolio vs. my car, too much cash vs. too little cash. Liabilities: liabilities are listed in order of time to maturity, debt vs. equity, ownership, first right of payment, dividend vs. interest, taxes. Financial leverage: the company"s gains and losses are magnified as the company increases the amount of debt in the capital structure. Net working capital: nwc= current assets- current liabilities, positive when the cash that will be received over the next 12 months exceeds the cash that will be paid out, usually positive in a financially healthy firm. 2011 and 2012 balance sheets ($ in millions)

Related Questions

INSTRUCTION: Answer all questions in this section. Each question carries 2 marks. Answer True or False to the following questions.

1. The cash conversion cycle of a firm is the length of time between the actual cash outflow for materials and the actual cash inflow from sales. To calculate this cycle, we need all the information used to calculate the operating cycle plus Days Payables Outstanding (DPO).

2. Net working capital is defined as current liabilities minus current assets.

3. Sales volume and collection period will be affected by a firm's credit policy.

4. Accounts payable, or trade credit, increases net working capital.

5. Efficient cash management is often concerned with speeding up the collection of cheques received and slowing down the payment of cheques issued.

Choose the letter a, b, c, or d that carries the best response.

6. The income statement reports the results of operations during the past year, the most important item being:

Net Income

Interest Expense

Earnings Before Interest and Taxes

Earnings Per Share

7. Which would represent claims against assets in the balance sheet:

Liabilities

Liabilities and stockholders' equity

Common stockholders' equity

Both common and preferred stockholders' equity

8. The two accounts that normally make up the common equity section of the balance sheet are and

accounts payable; accruals

common stock; retained earnings

long-term bonds; common stock

equity; liabilities

9. Accounting profits is different from net cash flow because

Net cash flow includes profits from operations.

Non-cash items are not included in the accounting profits

Net-cash flows take account of all non-cash items

Accounting profits overlooks depreciation and taxes

MGMT2023

Page 3

10. Which of the following represents an investing cash outflow?

An increase in holdings of stocks of other companies

A decrease in accounts payable

A decrease in gross property, plant and equipment

A decrease in accumulated depreciation

11. Which group of ratios show the combined effect of liquidity, asset management and debt on operating results?

Liquidity ratios

Debt ratios

Coverage ratios

Profitability ratios

12. Cottler Ltd. has current_. assets equal to $4.5 million. The company's current ratio is 1.25, and its quick ratio is 0.75. What is the firm's level of current liabilities in millions
	$3.6
	$0.18
	$2.4
	$2.9

13. You are given the following cash flows. What is the present value (t = 0) if the discount rate is 12 percent?

Time	0	1	2	3	4	5	6
Cash flows	0	1,000	2,000	2,000	2,000	0	-2,000

	PV= ?
	$3,277
	$4,169
	$5,302
	$4,289

14. You invest $5,000 today. You will earn 8% interest. How much will you have in 4 years? (Pick the closest answer.)

	$6,802
	$6,843
	$3,675
	$3,475

15. You are buying your first house for $220,000 and are paying $30,000 as a down payment. You have arranged a 30-year mortgage loan With a 7% nominal interest rate and monthly payments. What are the equal monthly payments you must make?

	$1,513
	$1,464
	$1,264
	$6,922

amaranthyak153

Compare Companies --- Netflix (NFLX) vs. GEO Holdings (TOK) Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success. Analyze corporate financial data in evaluating past and future financial performances.

Use formulas to calculate the following financial indicators for each year of data: Three fiscal years for Netflix and GEO Holdings for:

o Price to earnings ratio

o Debt to equity ratio

o Free cash flow

o Earnings per share

o Return on equity

o Net profit margin

V. Performance Over Time

A. Analyze the performance of the Netflix over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.

B. Analyze the performance of your GEO Holdings over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.

C. Analyze how the data differ between these two companies. Why do you think this is? Consider addressing the free cash flows and ratios you calculated earlier.

VI. Investment

A. Are the companies considered growth or value companies? Why?

B. Which companyâs stock is the better investment?

Netflix Inc. (NMS: NFLX)

Exchange rate used is that of the Year End reported date


As Reported Annual Balance Sheet
Report Date	12/31/2016	12/31/2015	12/31/2014
Currency	USD	USD	USD
Audit Status	Not Qualified	Not Qualified	Not Qualified
Consolidated	Yes	Yes	Yes
Scale	Thousands	Thousands	Thousands

Cash & cash equivalents	1467576	1809330	1113608
Short-term investments	266206	501385	494888
Current content library, net	-	-	2125702
Current content assets, net	3726307	2905998	-
Other current assets	260202	215127	206271
Total current assets	5720291	5431840	3940469
Non-current content library, net	-	-	2773326
Non-current content assets, net	7274501	4312817	-
Information technology assets	185345	194054	189274
Furniture & fixtures	32185	30914	25758
Building	40681	40681	40681
Leasehold improvements	107945	107793	57339
DVD operations equipment	70152	88471	89144
Capital work-in-progress	108296	8845	12495
Property & equipment, gross	544604	470758	414691
Less: accumulated depreciation	294209	297346	264816
Property & equipment, net	250395	173412	149875
Other non-current assets	341423	284802	192981
Total assets	13586610	10202871	7056651
Current content liabilities	3632711	2789023	2117241
Accounts payable	312842	253491	201581
Accrued expenses	197632	140389	69746
Deferred revenue	443472	346721	274586
Total current liabilities	4586657	3529624	2663154
Non-current content liabilities	2894654	2026360	1575832
Long-term debt	3364311	2371362	900000
Other non-current liabilities	61188	52099	59957
Total liabilities	10906810	7979445	5198943
Common stock	1599762	1324809	60
Additional paid-in capital	-	-	1042810
Foreign currency	-47966	-42502	-4615
Change in unrealized gains on available for sale securities	-599	-806	169
Accumulated other comprehensive income (loss)	-48565	-43308	-4446
Retained earnings (accumulated deficit)	1128603	941925	819284
Total stockholders' equity (deficiency)	2679800	2223426	1857708

Geo Holdings Corp (TOK: 2681)

Due to changes with International Financial Reporting Standards (IFRS), recent financials statement presentations have been adjusted to meet this standard. Please note the original historical presentations have remained in the original format

Exchange rate used is that of the Year End reported date


As Reported Annual Balance Sheet
Report Date	03/31/2016	03/31/2015	03/31/2014
Currency	JPY	JPY	JPY
Audit Status	Not Qualified	Not Qualified	Not Qualified
Consolidated	Yes	Yes	Yes
Scale	Millions	Millions	Thousands
Cash & deposits	37683	32052	19869000
Trade notes & accounts receivables	4100	4077	3992000
Merchandise	24894	23834	23495000
Deferred tax assets	2156	1806	1773000
Other current assets	5462	7181	5942000
Allowance for doubtful accounts	-281	-292	343000
Total current assets	74015	68659	54729000
Asset for rent, gross	100974	104514	104647000
Accumulated depreciation - asset for rent	-95154	-97475	96055000
Asset for rent, net	5820	7038	8591000
Buildings & structures, gross	40872	39984	39478000
Accumulated depreciation - buildings & structures	-27470	-26362	25976000
Buildings & structures, net	13402	13622	13501000
Land, net	5844	6356	6651000
Leased assets, gross	2176	3519	4576000
Accumulated depreciation - leased assets	-681	-1764	2588000
Leased assets, net	1495	1754	1988000
Other property, plant & equipment, gross	24838	20562	17708000
Accumulated depreciation - other property, plant & equipment	-18391	-15292	13236000
Other property, plant & equipment, net	6447	5270	4471000
Total property, plant & equipment	33010	34043	35205000
Total intangible assets	1865	1277	2028000
Investment securities	926	1002	1266000
Long-term loans receivable	2250	6682	6628000
Lease & guarantee deposits	14905	14735	15034000
Deferred tax assets	3342	3774	2845000
Other investments & other assets	1222	1188	1760000
Allowance for doubtful accounts	-1332	-3751	3917000
Total investments & other assets	21315	23632	23617000
Total non-current assets	56192	58952	60851000
Total assets	130207	127612	115581000
Trade accounts payable	12631	13540	13124000
Current portion of long-term borrowings	8333	7097	8754000
Current portion of bonds	149	149	249000
Income taxes payable	4815	265	1170000
Reserve for bonuses	1665	1420	1135000
Other current liabilities	10135	12595	10279000
Total current liabilities	37731	35068	34713000
Bonds	105	254	403000
Long-term borrowings	19509	21843	13910000
Lease liabilities	1612	1660	1590000
Deferred tax liabilities	23	22	26000
Asset retirement obligations	4406	3994	3898000
Other non-current liabilities	1857	1554	1839000
Total non-current liabilities	27514	29329	21668000
Total liabilities	65246	64398	56381000
Capital stock	8871	8615	8603000
Capital surplus	3283	6090	6078000
Retained earnings	52542	49998	44381000
Treasury shares	-	-1979	334000
Total shareholders' equity	64697	62724	58729000
Valuation difference on available-for-sale securities	166	282	297000
Loss (gain) on deferred hedge	-15	-	297000
Total accumulated other comprehensive income	150	282	172000
Stock acquisition rights	113	206	59199000
Net assets	64961	63214	115581000
Total liabilities & net assets	130207	127612

Netflix Inc. (NMS: NFLX)

Exchange rate used is that of the Year End reported date


As Reported Annual Income Statement
Report Date	12/31/2016	12/31/2015	12/31/2014
Currency	USD	USD	USD
Audit Status	Not Qualified	Not Qualified	Not Qualified
Consolidated	Yes	Yes	Yes
Scale	Thousands	Thousands	Thousands

Revenues	8830669	6779511	5504656
Cost of revenues	6029901	4591476	3752760
Marketing expenses	991078	824092	607186
Technology & development expenses	852098	650788	472321
General & administrative expenses	577799	407329	269741
Operating income (loss)	379793	305826	402648
Interest expense	150114	132716	50219
Interest & other income (expense)	30828	-31225	-3060
Income before income taxes - United States	188078	95644	325081
Income (loss) before income taxes - foreign	72429	46241	24288
Income (loss) before income taxes	260507	141885	349369
Current tax provision (benefit) - federal	54315	52557	86623
Current tax provision (benefit) - state	5790	-1576	9866
Current tax provision (benefit) - foreign	60571	26918	16144
Total current tax provision (benefit)	120676	77899	112633
Deferred tax provision (benefit) - federal	-24383	-37669	-10994
Deferred tax provision (benefit) - state	-14080	-17635	-17794
Deferred tax provision (benefit) - foreign	-8384	-3351	-1275
Total deferred tax provision (benefit)	-46847	-58655	-30063
Provision for (benefit from) income taxes	73829	19244	82570
Net income (loss)	186678	122641	266799
Weighted average shares outstanding - basic	428822	425889	420546
Weighted average shares outstanding - diluted	438652	436456	431893
Year end shares outstanding	430054.212	427940.44	422910.887
Net income (loss) per share - basic	0.44	0.29	0.634
Net income (loss) per share - diluted	0.43	0.28	0.617
Number of full time employees	4500	3500	2189
Number of part time & temporary employees	200	400	261
Total number of employees	4700	3700	2450
Number of common stockholders	290	237	203
Foreign currency translation adjustments	-5464	-37887	-

Geo Holdings Corp (TOK: 2681)

Exchange rate used is that of the Year End reported date


As Reported Annual Income Statement
Report Date	03/31/2016	03/31/2015	03/31/2014
Currency	JPY	JPY	JPY
Audit Status	Not Qualified	Not Qualified	Not Qualified
Consolidated	Yes	Yes	Yes
Scale	Millions	Millions	Thousands
Total revenue	267910	270308	262324000
Cost of sales	-151798	-157825	152301000
Gross profit	116112	112483	110022000
Selling, general & administrative expenses	-99559	-102925	100823000
Operating income	16552	9558	9198000
Interest & dividend income	49	114	111000
Rental income	1268	1167	1193000
Other non-operating income	1043	1062	453000
Total non-operating income	2361	2343	1758000
Interest expense	-230	-231	332000
Rental expenses	-759	-609	595000
Transfer to reserve for doubtful account	-	-227	-
Other non-operating expenses	-100	-803	-
Total non-operating expenses	-1089	-1871	684000
Ordinary income	17824	10030	1612000
Imapirment loss	-1319	-1543	9344000
Other extraordinary losses	-13	-	203000
Total extraordinary losses	-1333	-1543	203000
Income before income taxes	16491	8486	1218000
Income taxes - current	-5779	-2074	514000
Income taxes - deferred	-147	925	87000
Total income taxes	-5927	-1149	1821000
Profit	10563	7337	7726000
Profit attributable to owners of parent	10563	7337	4027000
Average number of shares outstanding - basic	51.331	53.169	-39000
Average number of shares outstanding - diluted	51.623	53.29	3987000
Year end shares outstanding	48.244	52.295	3738000
Earnings per share - basic	205.78	137.99	-70000
Earnings per share - diluted	204.62	137.68	3808000
Number of full time employees	3825	3579	53996.5
Number of part time employees	10421	10114	54066.499
Number of common stockholders	57105	65030	53996.5

rubyalpaca295

Just need the last two questions answered A and B at the bottom of the document

Youâre the chief financial officer (CFO) of Worldwide
Widget Manufacturing, Inc. The company manufactures and
sells widgets at factories in the United States and internationally.
Listed below are partial financial statements for Worldwide
Widget Manufacturing, Inc. Fill in the missing information in
each of the following financial statements. Answer spaces are
given below.

Worldwide Widget Manufacturing, Inc.
Balance Sheet as of December 31, 2015 and 2014
(in millions of dollars)

	2015	2016		2015	2016
Assets Current Assets:			Liabilities and Equity Current Liabilities:
Cash and markatable securities	$427	$322	Accured wages and taxes	$309	$257
Accounts Receivable	a.?	259	Accounts payable	381	b.?
Inventory	815	797	Notes Payable	$492	$421
Total	$1,542	$1,378	Total	$1,182	$997
Fixed Assets:			Long-term debt:	$1,934	c.?
Gross plant and equipment	d.?	$2,817	Total	3,116	2,956
Less:depreciation	368	254	Stockholder's equity:
Net plant and equipment	$2,872	$2,563	Preferred stock ( 30 million shares)	$30	$30
Other long term assets	521	487	Common stock and paid in surplus (250 million shares)	300	e.?
			Retained earnings	1,489	1,142
Total FA	f.?	$3,050	Total Equity	$1,819	$1,472
Total Assets	$4,935	$4,428	Total liabilities and equity	$4,935	$4,428

A. Accounts receivable for 2015_______300

B. Accounts payable for 2014_______319

C. Gross plant and equipment for 2015_______1959

D. Long-term debt for 2014_______3240

E. Common stock and paid-in surplus (250 million shares) for 2014_______300

F. Total FA for 2015_______3393

Worldwide Widget Manufacturing, Inc. Income Statement for Years Ending December 31, 2015 and 2014(in millions of dollars)

	2015	2014
Net Sales	g.	$2018
Less: Cost of Goods Sold	753	h.?
Gross Profits	$1,623	$1,189
Less: Other Operating Expense	423	167
Earnings before interest, taxes, depreciation, and amortization (EBITDA)	$1,200	$1,022
Less: Depreciation	114	114
Earning before interest and taxes (EBIT)	$1,086	$908
Less: Interest	i.?	128
Earnings:before Taxes (EBT)	$949	$780
Less:Taxes	j.?	23
Net Income	$664	$546
Less:Preferred stock dividends	98	98
Net income available to common stock holders	$566	$448
Less:Common stock dividends	219	199
Addition to retained earnings Per common share data:	$347	$249
Earnings per share (EPS)	k.?	$1.79
Dividends per share (DPS)	$0.88	l. ?
Book Value per share (BVPS)	m.?	$5.77
Market Value per share (MVPS)	$23.97	$22.47

g. Net sales for 2015_______2376
h. Less: Cost of goods sold for 2014_______829
i. Less: Interest for 2015_______137
j. Less: Taxes for 2015_______285
k. Earnings per share (EPS) for 2015_______1.88
l. Dividends per share (DPS) for 2014_______.73
m. Book value per share (BVPS) for 2015_______7.16

Worldwide Widget Manufacturing, Inc.
Statement of Cash Flows for Year Ending December 31, 2015
(in millions of dollars)â

Section A: Cash Flows from operating activities
Net Income	n.?
Additions (source of cash): Depreciation	114
Increase in accrued wages and taxes	o.?
Increase in accounts payable	62
Subtractions (use of cash): Increase in accounts receivable	-41
Increase in inventory	p.?
Net Cash flow from operating activities	q.?
Section B: Cash Flows from investing activities subtractions: Increase in fixed assets	-$343
Increase in other long-term assests	r.?
Net Cash flow from investing activities	s.?
Section C. Cash flows from financing activities Additions: Increase in notes payable	t.?
Increase in common and preferred stock	0
Subtractions: Decrease in long-term debt	-25
Pay dividends	u.?
Net Cash flow from financing activities Section D. Net Change in cash and marketable securities	v.? $105

n. Net income_______664
o. Increase in accrued wages and taxes_______52
p. Increase in inventory_______18
q. Net cash flow from operating activities_______833
r. Increase in other long-term assets_______34
s. Net cash flow from investing activities_______-377
t. Increase in notes payable_______71
u. Pay dividends_______317
v. Net cash flow from financing activities_______-271

Worldwide Widget Manufacturing, Inc.
Statement of Retained Earnings as of December 31, 2015
(in millions of dollars)

Balance of retained earnings, December 31,2014		$1,142
Plus: Net income for 2015		w.?
Less: Cash dividends paid	0	0
Preferred stock	x.?
Common Stock	219
Total cash dividends paid		317
Balance of retained earnings, December 31,2015		$1,489

w. Plus: Net income for 2015 _______664
x. Preferred stock _______98

2. Youâll need to compare your companyâs ratios with the industryâs standards.

Worldwide Widget Manufacturing, Inc.

	Company	Industy	Comparison
Current Ratio		2.2 times
Quick Ratio		1.1 times
Cash Ratio		0.35 times
Inventory turnover		2 times or 1 time
Days' sales in inventory		135 days or 335 days
Average payment period		110 days
Sales to working capital		3 times
Total asset turnover		0.6 times
Debt-to equity		1.1 times
Profit margin		16.5%
Gross profit margin		48.13%
ROA		8.78%
ROE		19.45%
Divident payout		32%

A. Use the information found in Worldwide Widget Manufacturingâs financial statements
to calculate all of the listed financial ratios in the above table for your
company. Then, for each ratio, provide a comparison of the companyâs result
with the industry standards, indicating if your companyâs results are lower than,
higher than, slower than, or faster than the industry standards.
B. Calculate your companyâs internal and sustainable growth rates.

amaranthkangaroo292

FINC-220 Lecture Notes - Lecture 2: Cash Flow, Financial Statement, Income Statement

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