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C OF C / OTHER / FINC 303 / How can we compute for balance sheet identity?

How can we compute for balance sheet identity?

How can we compute for balance sheet identity?

Description

School: College of Charleston
Department: OTHER
Course: Corporate Finance
Professor: Mark pyles
Term: Spring 2017
Tags: finance and business
Cost: 25
Name: FINC 303, Week 2 Notes
Description: Lecture notes from week 2. Included is an equation sheet that was passed out and for us to use on all tests/quizzes for the rest of the semester.
Uploaded: 01/30/2017
5 Pages 90 Views 1 Unlocks
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Cash FlowDon't forget about the age old question of Why are competitors considered an "immediate environment"?

                                                                        CFF AWe also discuss several other topics like What is stated by the law of segregation?

                                        Cash Flow identity → cash flow from assetsWe also discuss several other topics like Which type of research examines the relationship between variables without assigning participants to different situations or conditions?

                                        Balance sheet identity                =

                                        ⤷ A=L+E                cash flow to creditorsWe also discuss several other topics like How does the structure of r groups differ from amino acids?

                                                                        CFTCWe also discuss several other topics like What happens during neural processing in physiology?

                                                                        +

                                                                Cash flow to shareholdersDon't forget about the age old question of What are the uses of evaporation in isolating the components of a three-component mixture?

                                                                        CFTS

Cash Flow From Assets

1. Operating Cash Flow (OCF) → want to be like net income

                ⤷ exclude depreciation from consideration

        ⤷ want this to be positive (inflow)                ⤷ exclude interest

                                                        ⤷ include taxes

2. Net Capital Spending (NCS) → spending on fixed assets

        

        i.e.                 ⤷ positive or negative is okay

                                                           ↙                ↘

                                                        Outflow        Inflow

                                                        Outflow        Inflow

Cash Flow to Creditors                                 ↖                ↗        

         → positive or negative

                                ⤷ () is okay

                                        (long term debt)

Cash Flow To Shareholders → positive or negative

                                     ↙                 ↘

                                Outflow        Inflow

        

                        ⤷

In-Class Example - Ch.2

1.         Firm ABC

        Income Statement

        For the year ending Dec. 31, 2016

Sales                        62,000

COGS                        (34,8000)

Depreciation                (10,000)

EBIT                        17,200

Interest                (3,000)

Taxable Income        14.200

Taxes (35%)                (4,970)

Net Income                9,230

⤷ Dividend        6,000

⤷ Add RE        3,230

2.        Firm ABC

        Balance Sheet

        As of Dec. 31, 2015(16)

Assets                                            2015

CA                                     80,000

FA                                120,000

Total Assets                                    200,000

                2016

                88,000                        136,00                        224,000

Liabilities

        CL                                38,000

        L-TD                                78,000

Total Liabilities                                116,000

                47,000

                84,000

                131,000

Equity

        RE                                18,000

        Common Stock                66,000

Total Equity                                84.000

21,230(18,000+3,230)

                71,770

                93,000

3. EPS for 2016

        

4. DPS for 2016 (Dividends/Share)

        

5. OCF for 2016

        

6. NCS for 2016

        

7. ANWC for 2016

        

8. CFTC for 2016

        

9. CFTS for 2016

        

✱ Financial Statement Analysis: what is right, what is wrong, why

        ⤷ in Pyles’ book on library website

Ch.3

✱ We want to create a user’s guide on translate accounting information into financial information.

How?

  • Comparison

Who?

1. Our past selves

2. Our competitors

3. Our industry

Common-size Statements - allow us to take size out of the picture.

        ⤷ we ant to know where every penny of a dollar of sales goes

Ratio Analysis - 5 Categories

Sustaining Ratios

1. Short-term solvency (liquidity) - measures the firm’s short-run ability to pay their

bills         ✱Check-off category

        2. Long-term solvency (leverage) - measures the firm’s long-run ability to pay their bills

                ✱Check-off category

Progressing Ratios

3. Asset Utilization (turnover) - measure firm’s ability to generate sales with assets

4. Profitability - measures firm’s ability to generate profits from sales

5. Market - measures firm’s ability to generate market value from profits

  1. The Cash Flow Identity

Cash flow from assets = Cash flow to creditors (bondholders)

  • Cash flows to stockholders (owners)
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