Chapter 11
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This document discusses key financial statements including the income statement, statement of stockholders' equity, and related accounting concepts. It provides examples of income statements and explains how they are used to report revenues, expenses, gains/losses, income taxes, discontinued operations, and earnings per share. It also discusses the statement of stockholders' equity, retained earnings, comprehensive income, and the responsibilities of management and auditors for financial reporting.
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Discharges
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Similar to Chapter 11
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Liquidity ratios Formulas
Current ratio Current Assets / Current Liabilities
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Acid test ratio (Cash + Marketable Securities) / Current Liabilities
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Days cash on hand [(Cash + Marketable Securities + Long-Term
Investments/Operating Expenses Depreciation and Amortization Expenses) / 365]
Average payment period, days Current Liabilities / [(Operating Expenses Depreciation and
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Revenues, expenses, and profitability Formulas
Operating revenues per adjusted discharge Total Operating Revenues / Adjusted
Discharges
Operating expense per adjusted discharge Total Operating Expenses / Adjusted
Discharges
Salary and benefit expense as percentage of operating expense Total Salary and Benefit Expense
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Operating margin Operating Income / Total Operating
Revenues
Nonoperating revenue ratio Nonoperating Revenues and Other Income /
Total Operating Revenues
Return on total assets Excess of Revenues over Expenses / Total Assets
Return on net assets Excess of Revenues over Expenses / Net Assets
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Total asset turnover ratio Total Operating Revenues / Total Assets
Net fixed assets turnover ratio Total Operating Revenues / Net Plant and
Equipment
Age of plant ratio Accumulated Depreciation / Depreciation Expense
Capital Structure ratios Formulas
Long-term debt to net assets ratio Long-Term Debt / Net Assets
Net assets to total assets ratio Net Assets / Total Assets
Times interest earned ratio (Excess of Revenues over Expenses + Interest
Expense) / Interest Expense
Debt service coverage ratio (Excess of Revenues over Expenses + Interest
Expense + Depreciation and Amortization Expenses) / (Interest Expense + Principal Payments)
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Discharges. b In for-profit health care organizations, calculated as Net Income / Total Assets.
c Called return on equity in for-profit health care organizations, and calculated as Net Income /
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calculated as Long-Term Debt / Owners’ Equity.
e Called equity to total assets in for-profit health care organizations, and calculated as Owners’
Equity / Total Assets.
f In for-profit health care organizations, calculated as (Net Income + Interest Expense) / Interest
Expense.
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Module 5.2 - Financial sustainability
The SENSES project co-funded by the European Union funds (ERDF and IPA)
For more information check the official website: http://www.interreg-danube.eu/senses
1,2 introduction to accounting and finance
This document provides an introduction to accounting and finance concepts. It discusses why accounting is needed, the different forms of business ownership like proprietorship, partnership and corporation. It also summarizes key accounting concepts like the accounting equation, revenues, expenses, assets, liabilities and equity. Financial statements like the balance sheet, income statement and cash flow statement are also introduced. Finally, it discusses the different users of accounting information like management, investors, creditors and tax authorities.
Lecture 3 (chapter 6) accounting for finance
This chapter discusses key accounting concepts including the income statement, balance sheet, statement of cash flows, and various performance measures. It also covers the calculation of free cash flow and how it is used to determine a firm's intrinsic value. The chapter includes sample financial statements and uses them to illustrate accounting analyses such as evaluating the impact of expansion on assets, liabilities, equity, and cash flows. Key financial metrics like return on invested capital, economic value added, and market value added are also defined and calculated using information from the sample statements. Finally, the chapter reviews features of corporate and individual taxation.
Chapter 4
This chapter discusses key financial performance metrics including the balance sheet, income statement, and cash flow statement. It describes how to prepare these statements and defines important terms. The chapter also covers operating breakeven analysis, explaining how to calculate survival revenues needed to cover costs using the variable cost ratio. An example is provided to demonstrate how to determine the breakeven level of revenues. Finally, the chapter identifies factors that influence breakeven levels, such as contribution margin and fixed costs.
Statement of Cash Flows The Statement of Cash Flow, the fo.docx
Statement of Cash Flows
The Statement of Cash Flow, the fourth financial statement required by GAAP, discloses
how a corporation receives and spends cash. The module also introduces comparative
analysis, using horizontal and vertical techniques as well as standard financial ratios.
The Statement of Cash Flows
The fourth and last major financial statement for corporations is the Statement of Cash
Flows. Along with the Income Statement, Balance Sheet, and Statement of Stockholders'
Equity, the Statement of Cash Flows provides a consistent format for analyzing external
financial information across organizations.
Purpose of the Statement
As its name implies, the Statement of Cash Flows presents where a corporation received
cash (cash receipts) and where it spent cash (cash payments) during the fiscal year.
The statement has four major purposes:
• used to predict future cash flows and if bills can be paid
• used to determine if good financial investment decisions are being made by
management
• identifies if stockholder dividends can be paid to investors
• used to evaluate the relationship between changes in cash position and net income
The Statement of Cash Flows consists of three sections: operating activities, investing
activities, and financing activities. Each section or activity generates and/or uses cash.
For example:
cash is generated by:
• operating activities (receipts)
• investing activities (use of assets)
• financing activities (borrowing)
cash is used:
• operating activities (expenses to generate revenues)
• investing activities (purchase of assets)
• financing activities (repayment of long-term debt and equity payments)
Operating activities generate revenues and expenses. This source of cash is the most
important since it is derived from the main purpose of a corporation’s existence.
Investing activities deal with long-term assets. For example, the purchase of a new
machine would be an investing activity. Financing activities generate cash from
investors and creditors. If long-term debt were issued an inflow of cash would occur.
The issuance of additional stock would also generate cash while the retirement of long-
term debt would be a use of cash.
The preparation of the statement involves using the other three financial statements
(Income Statement, Balance Sheet, and Statement of Stockholders' Equity) and making
certain adjustments to shift focus from the accrual basis of accounting to the cash basis of
accounting.
The Financial Accounting Standards Board (FASB) has approved two methods of
preparing the Statement of Cash Flows: (1) the direct method, preferred by GAAP, and
(2) the indirect method, most often used by corporations.
Direct Method
The direct method provides more information and analyzes all activities that increase or
decrease cash. As with the indirect method, activities that increase or decrease cash are
first ident.
Statement of Cash Flows - CR.pdf
The document provides an overview and definitions for key terms related to the statement of cash flows, including:
- The statement of cash flows reports sources and uses of cash divided into operating, investing, and financing activities.
- Transactions not involving cash are reported separately.
- Free cash flow is calculated as cash from operating activities less maintenance capital expenditures and dividends.
- The indirect and direct methods for preparing the operating activities section are described.
- Investing activities involve long-term assets, financing activities involve long-term liabilities and equity.
- Several examples are provided to illustrate preparing sections of the statement of cash flows.
There are 76 red xxx’s – each worth 1.18 points. You only need to.docx
There are 76 red xxx’s – each worth 1.18 points. You only need to fill in where you see red xxx’s (big or small)
CHAPTER 1
THE McGEE CAKE COMPANY
1. The advantages to a LLC are: xxxx
The biggest disadvantage is: xxxx
2. .xxxx
C-2 CASE SOLUTIONS
3. .xxxx
CHAPTER 2
CASH FLOWS AND FINANCIAL STATEMENTS
Below are the financial statements that you are asked to prepare.
1. The income statement for each year will look like this:
Income Statement
2010
2011
Sales
xxxx
xxxx
Cost of goods sold
163,849
206,886
Selling and administrative
xxxx
xxxx
Depreciation
46,255
52,282
EBIT
$79,110
$90,584
Interest
10,056
11,526
EBT
$69,054
$79,058
Taxes (use the problem to figure
This amount out
xxxx
xxxx
Net income
$55,243
$63,246
Dividends(read the case to find out how much this is)
xxxx
xxxx
Addition to retained earnings
(this would be whatever the net income is less the dividends paid out)
xxxx
xxxx
2. The balance sheet for each year will be:
Balance Sheet as of Dec. 31, 2010
Cash
xxxx
Accounts payable
xxxx
Accounts receivable
xxxx
Notes payable
xxxx
Inventory
xxxx
Current liabilities
$60,832
Current assets
$72,651
Long-term debt
xxxxx
Net fixed assets
xxxxxx
Owners' equity
xxxxx
Total assets
$276,719
Total liab. and equity
$276,719
In the first year, equity is not given. Therefore, we must calculate equity as a plug variable. Since total liabilities and equity is equal to total assets, equity can be calculated as:
Equity = $276,719 – 60,832 – 103,006
Equity = $112,881
Balance Sheet as of Dec. 31, 2011
Cash
xxxx
Accounts payable
xxxx
Accounts receivable
xxxx
Notes payable
xxxx
Inventory
xxxx
Current liabilities
$68,121
Current assets
$100,834
Long-term debt
xxxx
Net fixed assets
xxxx
Owners' equity
Xxxx(see below)
Total assets
$349,459
Total liab. and equity
$349,459
The owner’s equity for 2011 is the beginning of year owner’s equity, plus the addition to retained earnings, plus the new equity, so:
Equity = $112,881 + 31,623 + 20,500
Equity = $165,004
3-6 are completed for you so you can answer the questions
3. Using the OCF equation: (
OCF = EBIT + Depreciation – Taxes
The OCF for each year is:
OCF2010 = $79,110 + 46,255 – 13,811
OCF2010 = $111,554
OCF2011 = $90,584 + 52,282 – 15,812
OCF2011 = $127,054
4.
To calculate the cash flow from assets, we need to find the capital spending and change in net working capital. The capital spending for the year was:
Capital spending
Ending net fixed assets
$248,625
– Beginning net fixed assets
204,068
+ Depreciation
52,282
Net capital spending
$96,839
And the change in net working capital was:
Change in net working capital
Ending NWC
$32,713
– Beginning NWC
11,819
Change in NWC
$20,894
So, the cash flow from assets was:
Cash flow from assets
Operating cash flow
$127,054
– Net capital spending
96,839
– Change in NWC
...
Lecture-4-5.pptx
This will be useful if you are in the field of accounting. This topic will be presenting financial statements. It will be beneficial to students who are inclined into, business and accounting
Chapter_2_Accounting_policies_,_change_in_estimates_and_errors.pptx
This document provides an overview and examples of accounting changes and errors, including:
- Changes in accounting principles are applied retrospectively with prior year financial statements restated. Changes in estimates and corrections of errors are recorded in the current period.
- A change in estimate example shows depreciation expense being calculated based on a new useful life estimate, without restating prior years.
- Corrections of errors are treated as prior period adjustments with an adjustment to beginning retained earnings.
- Related equity statements like retained earnings and comprehensive income are discussed. The retained earnings statement tracks changes to retained earnings over time, and can include prior period adjustments. Comprehensive income includes all equity changes in a period beyond net
basic-understanding-of-a-companys-financials.pdf
Understand business performance metrics in a fun, simple and interactive way and unlock your business analytical genius.
basic-understanding-of-a-companys-financials.pdf
basic understanding of financial accounting. Financial accounting for dummies. easy financial accounting
Similar to Chapter 11 (20)
Exhibit 4.16a Key Financial RatiosLiquidity ratios Formulas.pdf
Exhibit 4.16a Key Financial RatiosLiquidity ratios Formulas.pdf
Statement of Cash Flows The Statement of Cash Flow, the fo.docx
Statement of Cash Flows The Statement of Cash Flow, the fo.docx
There are 76 red xxx’s – each worth 1.18 points. You only need to.docx
There are 76 red xxx’s – each worth 1.18 points. You only need to.docx
Chapter_2_Accounting_policies_,_change_in_estimates_and_errors.pptx
Chapter_2_Accounting_policies_,_change_in_estimates_and_errors.pptx
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Chapter 11
- 1. Chapter 11 The Income Statement & The Statement of Stockholders’ Equity
- 6. Income Statement - Continuing Operations Allied Electronics Corporation Income Statement Year Ended December 31, 20x5 Sales revenue $500,000 Cost of goods sold –240,000 Gross margin $260,000 Operating expenses 181,000 Operating income $ 79,000
- 7. Income Statement - Continuing Operations Operating income $79,000 Other gains (losses): Loss on restructuring operations ( 8,000) Gain on sale of machinery 19,000 Income from continuing operations before income tax $90,000 Income tax expense 36,000 Income from continuing operations $54,000
- 8. Income Statement - Special Items Discontinued operations: $35,000, less income tax of $14,000 21,000 Income before extraordinary items and cumulative effect of change in depreciation method $75,000 Extraordinary flood loss, $20,000, less income tax savings of $8,000 (12,000) Cumulative effect of change in depreciation method, $10,000, less income tax of $4,000 6,000 Net income $69,000
- 10. Predicting Future Profits Estimated value of Common Stock = Estimated annual income in the future Investment capitalization rate Sell the stock Is less than Hold the stock Equals Buy the stock Current market Value of the Company Exceeds Decision If estimated value of the company:
- 11. Estimated Value of Common Stock
- 18. Income Statement - Earnings per Share Earnings per share of common stock (20,000 shares outstanding): Income from continuous operations (54000)/20000 $2.70 Income from discontinued operations (21000/20000) 1.05 Income before extraordinary item and cumulative effect of change in depreciation method (75000/20000) $3.75 Extraordinary loss (12000/20000) (0.60) Cumulative effect of change in depreciation method (6000/20000) 0.30 Net income (69000/20000) $3.45
- 24. Accounting for Corporate Income Taxes Dec 31 Income Tax Expense ($900 x .40) 360 Income Tax Payable ($800 x .40) 320 Deferred Tax Liability 40 Recorded income tax for the year ©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren
- 25. Accounting for Corporate Income Taxes Income statement Income before income tax $900 Income tax expense 360 Net income $540 Balance sheet Current Liabilities: Income tax payable $320 Long-term liabilities: Deferred tax liability 40 * Total $360 * Assumes beginning tax liability was zero.
- 27. Reporting a Prior-Period Adjustment ©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren CNN Corporation Statement of Retained Earnings Year Ended December 31, 2005 Retained Earnings, Dec. 31, 2004 (original) $390,000 Prior-period adjustment – debit to correct error in recording income tax expense of 2004 ( 10,000) Retained earnings, Dec. 31, 2004, adjusted $380,000 Net income for 2005 114,000 Total $494,000 Deduct: Dividends for 2005 ( 41,000) Retained earnings balance, Dec. 31, 2005 $453,000
- 30. Statement of Stockholders’ Equity