Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Linking
Financial Statements
Gresilda Xhaferi
Table of Contents
 The Three Principles
 Projection of CFO
 Projection of CFI and CFF
 Balance Sheet Adjustments
 Sum...
The Three Principles
How to link Financial Statements?
Principle #1: Each item on BS must have a corresponding
line item on the CF, and vice ve...
Projecting the CFO
CFS - Operations
Net Income: Flows as the top line
from “Net Income” item on the IS.
Non-cash expenses: Get added
back (+)...
CFO - Working Capital
WC: Represents if company
generates additional cash or
needs cash to operate.
WC = Current Assets (e...
Projecting CFI & CFF
CFS - Investing & Financing
CFI and CFF: Projected directly
on the CFS, then flow on the BS.
CapEx: Only appears on the
Ca...
CFS - Final Cash Balance
Net Change in Cash: Sum of
changes in Cash Flow from
Operations, Investing & Financing
activities...
Balance Sheet Adjustments
BS – Cash & Equity
Cash & Cash-Equivalents:
Ending Cash Balance on CFS
flows into “Cash & Cash-
Equivalents” on the BS (+)...
BS – Assets
Assets: Link non-cash BS items
with appropriate line items from
the CFS.
Always subtract when moving
from chan...
BS – Liabilities & Equity
Liabilities: Link non-cash BS
items with appropriate line items
from the CFS.
Always add when mo...
BS – Main Rule
Assets = Liabilities + Equity
Balance sheet: Check the BS is
in balance – Assets get acquired
either throug...
Summary 1
1. “Net Profit” from the IS flows as the top line of the CFS.
2. Adjust CFS for non-cash expenses on the IS – e....
Summary 2
5. Ending Cash Balance flows into “Cash & Cash-
Equivalents” on the BS, and “Net Profit” flows into Equity.
6. L...
Thank you!
Upcoming SlideShare
Loading in …5
×

of

Ysb project-ecorl-lesson-linking financial statements-deepening Slide 1 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 2 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 3 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 4 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 5 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 6 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 7 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 8 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 9 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 10 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 11 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 12 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 13 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 14 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 15 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 16 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 17 Ysb project-ecorl-lesson-linking financial statements-deepening Slide 18
Upcoming SlideShare
What to Upload to SlideShare
Next
Download to read offline and view in fullscreen.

0 Likes

Share

Download to read offline

Ysb project-ecorl-lesson-linking financial statements-deepening

Download to read offline

Linking Financial Statements Lesson

Related Audiobooks

Free with a 30 day trial from Scribd

See all
  • Be the first to like this

Ysb project-ecorl-lesson-linking financial statements-deepening

  1. 1. Linking Financial Statements Gresilda Xhaferi
  2. 2. Table of Contents  The Three Principles  Projection of CFO  Projection of CFI and CFF  Balance Sheet Adjustments  Summary
  3. 3. The Three Principles
  4. 4. How to link Financial Statements? Principle #1: Each item on BS must have a corresponding line item on the CF, and vice versa. The change in each item on BS must be reflected once and only once on the CF. Principle #2: The CFO is derived from the IS and operational BS items. CFI and CFF sections are projected directly on the CFS, and then flow into the Balance Sheet. Principle #3: When linking items from the CFS to the Balance Sheet, SUBTRACT when you're on the Assets side and ADD when you're on the Liabilities & Equity side.
  5. 5. Projecting the CFO
  6. 6. CFS - Operations Net Income: Flows as the top line from “Net Income” item on the IS. Non-cash expenses: Get added back (+) as these don’t represent real cash expenses e.g. D&A. Period 31-Dec-2015 to 31-Dec-2016 Cash Flow Statement: Cash Flow from Operating Activities: Net Income: 183$ Non-cash Expenses: 20 Change in Operating Working Capital: Change in Current Assets: (18) Change in Current Liabilities: 15 Cash Flow from Operations (A): 200$ Cash Flow from Investing Activities: Capital Expenditures (CapEx): (200)$ Purchases of Investments: - Cash Flow from Investing (B): (200)$ Cash Flow from Financing Activities: Debt Raised: 10$ Equity Issuance: 10 Cash Flow from Financing (C): 20$ Net Change in Cash (A+B+C): 20$ Beginning Cash Balance: -$ Ending Cash Balance: 20$
  7. 7. CFO - Working Capital WC: Represents if company generates additional cash or needs cash to operate. WC = Current Assets (exc. Cash & Short-Term Investments) – Current Liabilities (exc. Debt) Change WC = Old WC – New WC Period 31-Dec-2015 to 31-Dec-2016 Cash Flow Statement: Cash Flow from Operating Activities: Net Income: 183$ Non-cash Expenses: 20 Change in Operating Working Capital: Change in Current Assets: (18) Change in Current Liabilities: 15 Cash Flow from Operations (A): 200$ Cash Flow from Investing Activities: Capital Expenditures (CapEx): (200)$ Purchases of Investments: - Cash Flow from Investing (B): (200)$ Cash Flow from Financing Activities: Debt Raised: 10$ Equity Issuance: 10 Cash Flow from Financing (C): 20$ Net Change in Cash (A+B+C): 20$ Beginning Cash Balance: -$ Ending Cash Balance: 20$
  8. 8. Projecting CFI & CFF
  9. 9. CFS - Investing & Financing CFI and CFF: Projected directly on the CFS, then flow on the BS. CapEx: Only appears on the Cash Flow and affects the PP&E item on the Balance Sheet. Other Items: Determine directly investing activities, debt and equity issuances/repayments etc. Period 31-Dec-2015 to 31-Dec-2016 Cash Flow Statement: Cash Flow from Operating Activities: Net Income: 183$ Non-cash Expenses: 20 Change in Operating Working Capital: Change in Current Assets: (18) Change in Current Liabilities: 15 Cash Flow from Operations (A): 200$ Cash Flow from Investing Activities: Capital Expenditures (CapEx): (200)$ Purchases of Investments: - Cash Flow from Investing (B): (200)$ Cash Flow from Financing Activities: Debt Raised: 10$ Equity Issuance: 10 Cash Flow from Financing (C): 20$ Net Change in Cash (A+B+C): 20$ Beginning Cash Balance: -$ Ending Cash Balance: 20$
  10. 10. CFS - Final Cash Balance Net Change in Cash: Sum of changes in Cash Flow from Operations, Investing & Financing activities. Ending Cash Balance: Sum of Beginning Cash Balance and Net Change in Cash. Company started operations in 2016. Period 31-Dec-2015 to 31-Dec-2016 Cash Flow Statement: Cash Flow from Operating Activities: Net Income: 183$ Non-cash Expenses: 20 Change in Operating Working Capital: Change in Current Assets: (18) Change in Current Liabilities: 15 Cash Flow from Operations (A): 200$ Cash Flow from Investing Activities: Capital Expenditures (CapEx): (200)$ Purchases of Investments: - Cash Flow from Investing (B): (200)$ Cash Flow from Financing Activities: Debt Raised: 10$ Equity Issuance: 10 Cash Flow from Financing (C): 20$ Net Change in Cash (A+B+C): 20$ Beginning Cash Balance: -$ Ending Cash Balance: 20$
  11. 11. Balance Sheet Adjustments
  12. 12. BS – Cash & Equity Cash & Cash-Equivalents: Ending Cash Balance on CFS flows into “Cash & Cash- Equivalents” on the BS (+). Equity: “Net Profit” from the IS flows into Equity (Retained Earnings – category representing cash reinvested internally). Balance Sheet: 31-Dec-16 Current Assets: Cash & Cash-Equivalents: 20$ Short-Term Investments: 100 Accounts Receivable: 100 Prepaied Expenses: 100 Inventory: 100 Total Current Assets: 420 Long-Term Assets: Property, Plant & Equipment: 1,000 Other Intangible Assets: 480 Long-Term Investments: 100 Total Long-Term Assets: 1,580 Total Assets: 2,000$ Liabilities & Equity: Current Liabilities: 500 Long-Term Liabilities: 500 Equity: 1,000 Total Liabilities & Equity: 2,000$
  13. 13. BS – Assets Assets: Link non-cash BS items with appropriate line items from the CFS. Always subtract when moving from changes in items on the CFS to relevant assets on the BS. PP&E: CapEx (negative balance on the CFI) increases the PP&E, therefore needs to be subtracted. Balance Sheet: 31-Dec-16 Current Assets: Cash & Cash-Equivalents: 20$ Short-Term Investments: 100 Accounts Receivable: 100 Prepaied Expenses: 100 Inventory: 100 Total Current Assets: 420 Long-Term Assets: Property, Plant & Equipment: 1,000 Other Intangible Assets: 480 Long-Term Investments: 100 Total Long-Term Assets: 1,580
  14. 14. BS – Liabilities & Equity Liabilities: Link non-cash BS items with appropriate line items from the CFS. Always add when moving from changes in items on the CFS to relevant assets on the BS. Equity Issuance: Positive balance on the CFF - increases the Equity item on the BS, therefore needs to be added. Balance Sheet: 31-Dec-16 Assets: Current Assets: 420 Long-Term Assets: 1,580 Total Assets: 2,000$ Liabilities & Equity: Current Liabilities: Short-Term debt: 100$ Accounts Payable: 200 Accrued Expenses: 200 Total Current Liabilities: 500 Long-Term Liabilities & Equity: Deferred Revenue: 400 Deferred Tax Liability: - Long-Term Debt: 100 Equity: 1,000 Total Long-Term Liabilities & Equity: 1,500 Total Liabilities & Equity: 2,000$
  15. 15. BS – Main Rule Assets = Liabilities + Equity Balance sheet: Check the BS is in balance – Assets get acquired either through savings or by borrowing. Balance Sheet: 31-Dec-16 Assets: Current Assets: 420 Long-Term Assets: 1,580 Total Assets: 2,000$ Liabilities & Equity: Current Liabilities: 500 Long-Term Liabilities: 500 Equity: 1,000 Total Liabilities & Equity: 2,000$ BALANCE CHECK: OK!
  16. 16. Summary 1 1. “Net Profit” from the IS flows as the top line of the CFS. 2. Adjust CFS for non-cash expenses on the IS – e.g. D&A is not a real cash expense and needs to be added back. 3. Project CFI and CFF separately - determine CapEx, investing activities, equity and debt issuances. 4. Sum all sections to calculate the Net Change in Cash at the bottom of the CFS.
  17. 17. Summary 2 5. Ending Cash Balance flows into “Cash & Cash- Equivalents” on the BS, and “Net Profit” flows into Equity. 6. Link each non-cash items on the CF to the appropriate line item on the BS. Subtract on the Assets side, and add on the Liabilities & Equity side. 7. Check that the Balance Sheet balances - If it does not, go back and review each line item on the BS and CFS.
  18. 18. Thank you!

Linking Financial Statements Lesson

Views

Total views

76

On Slideshare

0

From embeds

0

Number of embeds

3

Actions

Downloads

1

Shares

0

Comments

0

Likes

0

×