1、Topics CoverednFinancial StatementsnNet Working CapitalnFinancial Cash FlownExecutive Paper CorporationnFinancial RatiosnThe DuPont SystemSources of InformationnAnnual reportsnWall Street JournalnInternetNYSE()Nasdaq()nSECEDGAR(free trial on http:/ reportsHow to get a copy of a companys balance shee
2、t?-The Annual Report-The 10K-The 10QThe Balance Sheet An accountants snapshot of the firms accounting value as of a particular date.The Balance Sheet Identity is:Equity srStockholdesLiabilitieAssets When analyzing a balance sheet,the financial manager should be aware of three concerns:accounting liq
3、uidity,debt versus equity,and value versus cost.The Balance Sheet of the U.S.Composite Corporation(in$millions)20X2 and 20X1Balance SheetU.S.COMPOSITE CORPORATIONLiabilities(Debt)Assets20X220X1and Stockholders Equity20X220X1Current assets:Current Liabilities:Cash and equivalents$140$107 Accounts pay
4、able$213$197 Accounts receivable294270 Notes payable5053 Inventories269280 Accrued expenses223205 Other5850 Total current liabilities$486$455 Total current assets$761$707Long-term liabilities:Fixed assets:Deferred taxes$117$104 Property,plant,and equipment$1,423$1,274 Long-term debt471458 Less accum
5、ulated depreciation-550-460 Total long-term liabilities$588$562 Net property,plant,and equipment873814 Intangible assets and other245221Stockholders equity:Total fixed assets$1,118$1,035 Preferred stock$39$39 Common stock($1 per value)5532 Capital surplus347327 Accumulated retained earnings390347 Le
6、ss treasury stock-26-20 Total equity$805$725Total assets$1,879$1,742Total liabilities and stockholders equity$1,879$1,742The assets are listed in order by the length of time it normally would take a firm with ongoing operations to convert them into cash.Clearly,cash is much more liquid than property
7、,plant and equipment.Balance Sheet AnalysisnWhen analyzing a balance sheet,the financial manager should be aware of three concerns:1.Accounting liquidity2.Debt versus equity3.Value versus costAccounting Liquidity nRefers to the ease and quickness with which assets can be converted to cash.nCurrent a
8、ssets are the most liquid.nSome fixed assets are intangible.nThe more liquid a firms assets,the less likely the firm is to experience problems meeting short-term obligations.nLiquid assets frequently have lower rates of return than fixed assets.Debt versus EquitynGenerally,when a firm borrows it giv
9、es the bondholders first claim on the firms cash flow.nThus shareholders equity is the residual difference between assets and liabilities.Value versus CostnUnder GAAP(Generally Accepted Accounting Principles)audited financial statements of firms in the U.S.carry assets at cost.nMarket value is a com
10、pletely different concept.The Income StatementnThe income statement measures performance over a specific period of time.nThe accounting definition of income isIncomeExpensesRevenueU.S.C.C.Income Statement(in$millions)20X2Income StatementU.S.COMPOSITE CORPORATIONTotal operating revenuesCost of goods
11、soldSelling,general,and administrative expensesDepreciationOperating incomeOther incomeEarnings before interest and taxesInterest expensePretax incomeTaxes Current:$71 Deferred:$13Net income Retained earnings:$43 Dividends:$43The operations section of the income statement reports the firms revenues
12、and expenses from principal operations$2,262-1,655-327-90$19029$219-49$170-84$86(in$millions)20X2Income StatementU.S.COMPOSITE CORPORATIONTotal operating revenues$2,262Cost of goods sold-1,655Selling,general,and administrative expenses-327Depreciation-90Operating income$190Other income29Earnings bef
13、ore interest and taxes$219Interest expense-49Pretax income$170Taxes-84 Current:$71 Deferred:$13Net income$86 Retained earnings:$43 Dividends:$43The non-operating section of the income statement includes all financing costs,such as interest expense.U.S.C.C.Income Statement(in$millions)20X2Income Stat
14、ementU.S.COMPOSITE CORPORATIONTotal operating revenuesCost of goods soldSelling,general,and administrative expensesDepreciationOperating incomeOther incomeEarnings before interest and taxesInterest expensePretax incomeTaxes Current:$71 Deferred:$13Net income Retained earnings:$43 Dividends:$43Usuall
15、y a separate section reports as a separate item the amount of taxes levied on income.$2,262-1,655-327-90$19029$219-49$170-84$86U.S.C.C.Income Statement(in$millions)20 x2Income StatementU.S.COMPOSITE CORPORATIONTotal operating revenuesCost of goods soldSelling,general,and administrative expensesDepre
16、ciationOperating incomeOther incomeEarnings before interest and taxesInterest expensePretax incomeTaxes Current:$71 Deferred:$13Net income Retained earnings:$43 Dividends:$43Net income is the“bottom line”.$2,262-1,655-327-90$19029$219-49$170-84$86U.S.C.C.Income Statementbottom line:because it is typ
17、ically found on the last line of a companys income statement.Income Statement AnalysisnThere are three things to keep in mind when analyzing an income statement:1.GAAP2.Non Cash Items3.Time and CostsGenerally Accepted Accounting Principles1.GAAPThe matching principal of GAAP dictates that revenues b
18、e matched with expenses.Thus,income is reported when it is earned,even though no cash flow may have occurred Notes：权责发生制原则(Accrual concept)：会计学的基本原则，国际公 认的标准。Income Statement Analysis2.Non Cash ItemsDepreciation(or amortization)is the most apparent.No firm ever writes a check for“depreciation”.Anoth
19、er noncash item is deferred taxes,which does not represent a cash flow.Income Statement Analysis3.Time and CostsnIn the short run,certain equipment,resources,and commitments of the firm are fixed,but the firm can vary such inputs as labor and raw materials.nIn the long run,all inputs of production(a
20、nd hence costs)are variable.nFinancial accountants do not distinguish between variable costs and fixed costs.Instead,accounting costs usually fit into a classification that distinguishes product costs from period costs.Notes:A manufacturers product costs（产品成本）are the direct materials,direct labor,an
21、d manufacturing overhead used in making its products.Period costs（期间费用）are not a necessary part of the manufacturing process and are usually associated with the selling function of the business or its general administration.Net Working CapitalNWC is usually growing with the firm.sLiabilitieCurrent -
22、AssetsCurrent Capital gNet WorkinThe Balance Sheet of the U.S.C.C.(in$millions)20X2 and 20X1Balance SheetU.S.COMPOSITE CORPORATIONLiabilities(Debt)Assets20X220X1and Stockholders Equity20X220X1Current assets:Current Liabilities:Cash and equivalents$140$107 Accounts payable$213$197 Accounts receivable
23、294270 Notes payable5053 Inventories269280 Accrued expenses223205 Other5850 Total current liabilities$486$455 Total current assets$761$707Long-term liabilities:Fixed assets:Deferred taxes$117$104 Property,plant,and equipment$1,423$1,274 Long-term debt471458 Less accumulated depreciation-550-460 Tota
24、l long-term liabilities$588$562 Net property,plant,and equipment873814 Intangible assets and other245221Stockholders equity:Total fixed assets$1,118$1,035 Preferred stock$39$39 Common stock($1 par value)5532 Capital surplus347327 Accumulated retained earnings390347 Less treasury stock-26-20 Total eq
25、uity$805$725Total assets$1,879$1,742Total liabilities and stockholders equity$1,879$1,742Here we see NWC grow to$275 million in 20X2 from$252 million in 20X1.This increase of$23 million is an investment of the firm.$23 million$275m=$761m-$486m$252m=$707-$455Financial Cash FlownIn finance,the most im
26、portant item that can be extracted from financial statements is the actual cash flow of the firm.nSince there is no magic in finance,it must be the case that the cash from received from the firms assets must equal the cash flows to the firms creditors and stockholders.)()()(SCFBCFACFFinancial Cash F
27、low of the U.S.C.C.(in$millions)20X2Financial Cash FlowU.S.COMPOSITE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capit
28、al-23 Total$42Cash Flow of Investors in the FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42Operating Cash Flow:EBIT$219Depreciation$90Current Taxes($71)OCF$238Financial Cash Flow of the U.S.
29、C.C.(in$millions)20X2Financial Cash FlowU.S.COMPOSITE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital-23 Total$42C
30、ash Flow of Investors in the FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42Capital SpendingPurchase of fixed assets$198Sales of fixed assets (25)Capital Spending$173(in$millions)20X2Financi
31、al Cash FlowU.S.COMPOSITE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital-23 Total$42Cash Flow of Investors in the
32、 FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42NWC grew to$275 million in 20X2 from$252 million in 20X1.This increase of$23 million is the addition to NWC.Financial Cash Flow of the U.S.C.C
33、.(in$millions)20X2Financial Cash FlowU.S.COMPOSITE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital-23 Total$42Cash
34、 Flow of Investors in the FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42Financial Cash Flow of the U.S.C.C.Financial Cash Flow of the U.S.C.C.(in$millions)20X2Financial Cash FlowU.S.COMPOSI
35、TE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital-23 Total$42Cash Flow of Investors in the FirmDebt$36 (Interest
36、plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42Cash Flow to CreditorsInterest$49Retirement of debt 73 Debt service 122Proceeds from new debt sales (86)Total36Financial Cash Flow of the U.S.C.C.(in$millions)20X2Fi
37、nancial Cash FlowU.S.COMPOSITE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working capital-23 Total$42Cash Flow of Investors i
38、n the FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42Cash Flow to StockholdersDividends$43Repurchase of stock 6 Cash to Stockholders 49Proceeds from new stock issue (43)Total$6Financial Cash
39、 Flow of the U.S.C.C.(in$millions)20X2Financial Cash FlowU.S.COMPOSITE CORPORATIONCash Flow of the FirmOperating cash flow$238 (Earnings before interest and taxes plus depreciation minus taxes)Capital spending-173 (Acquisitions of fixed assets minus sales of fixed assets)Additions to net working cap
40、ital-23 Total$42Cash Flow of Investors in the FirmDebt$36 (Interest plus retirement of debt minus long-term debt financing)Equity6 (Dividends plus repurchase of equity minus new equity financing)Total$42)()()(SCFBCFACFThe cash flow received from the firms assets must equal the cash flows to the firm
41、s creditors and stockholders:Executive PaperExecutive Paper Balance SheetDecDec19981999diffAssetsCurrent AssetsCash&Securities100.0110.010.0Receivables433.1440.06.9Inventory339.9350.010.1Total873.0900.027.0Fixed AssetsP,P,E929.8100.0-829.8accum Depr396.7450.053.3Net Fixed Assets533.1550.016.9Total A
42、ssets1,406.11,450.043.9Executive PaperDecDec19981999diffLiabilities and EquityCurrent LiabilitiesDebt due in 1 year96.6100.03.4Payable349.9360.010.1Total current liabilities446.5460.013.5Long term debt400.0400.00.0Shareholders equity559.6590.030.4Total liabilities and equity1,406.11,450.043.9Executi
43、ve PaperExecutive Paper-Other Data19981999Estimated repalcement cost of assets11101231Market value of equity598708Average number of shares,millions14.1614.16Share price,dollars42.2550Executive PaperExecutive Paper Income Statement(1999)$millionsRevenues2,200.00Costs1,980.00Depreciation53.30EBIT166.7
44、0Interest40.00Tax50.70Net income76.00Dividend45.60Retained earnings30.40Earnings per share,dollars5.37Dividend per share,dollars3.22Executive PaperExecutive Paper Sources and Uses of Funds(1999)Sources:$millionsNet Income76.00 Depreciation53.30 Operating cash flow129.30 Borrowing-Stock issues-Total
45、sources129.30 Uses:Increase in net working capital13.50 Investment70.20 Dividends45.60 Total uses129.30 Leverage RatiosLeverage RatiosTotal debt ratio=total liabilitiestotal assetsTimes interest earned=EBITinterest paymentsCash coverage ratio=EBIT+depreciationinterest payments利息保障率（Debt Service Cove
46、rage Ratio/Times interest earned）现金流偿债能力比率（Cash Coverage Ratio）Liquidity RatiosNet working capitalto total assets ratio=Net working capitalTotal assetsCurrent ratio=current assetscurrent liabilities流动比率（Current Ratio）Liquidity Ratios速动比率 现金比率 Efficiency Ratios运营资本周转率 资产周转比率Efficiency Ratios存货周转天数 应收
47、帐款平均收回期 Profitability RatiosProfitability RatiosPlowback ratio=earnings-dividendsearnings=1-payout ratioPayout ratio=dividendsearningsGrowth in equity from plowback=earnings-dividendsearningsMarket Value RatiosForecasted PE ratio=PaveEPS1r-g01=Di vEPSx11PE Ratio=stock priceearnings per shareDividend
48、 yield=dividend per sharestock price股息收益率Market Value RatiosMarket to book ratio=stock pricebook value per sharePrice per share=P=Divr-g01Tobins Q=market value of assetsestimated replcement costThe DuPont SystemnA breakdown of ROE and ROA into component ratios:ROA=EBIT-taxesassetsROE=earnings availa
49、ble for common stockequityThe DuPont SystemROA=salesassetsxEBIT-taxessalesThe DuPont SystemROA=salesassetsxEBIT-taxessalesassetturnoverprofitmarginThe DuPont SystemROE=assetsequityxsalesassetsxEBIT-taxessalesxEBIT-taxes-interestEBIT-taxesThe DuPont SystemROE=assetsequityxsalesassetsxEBIT-taxessalesxEBIT-taxes-interestEBIT-taxesleverageratioassetturnoverprofitmargindebtburden
