TOPIC 3 Cash Flow & Financial Analysis.ppt

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1、ASSET EVALUATION,TOPIC 3,Cash Flow and Financial Analysis,Topics Covered,Financial StatementsNet Working CapitalFinancial Cash FlowExecutive Paper CorporationFinancial RatiosThe DuPont System,Sources of Information,Annual reportsWall Street JournalInternetNYSE () Nasdaq () SECEDGAR (free trial on ht

2、tp:/ & 10Q reports,How to get a copy of a companys balance sheet?-The Annual Report-The 10K-The 10Q,The Balance Sheet,An accountants snapshot of the firms accounting value as of a particular date.The Balance Sheet Identity is:,When analyzing a balance sheet, the financial manager should be aware of

3、three concerns: accounting liquidity, debt versus equity, and value versus cost.,The Balance Sheet of the U.S. Composite Corporation,Liabilities (Debt),Assets,20X2,20X1,and Stockholders Equity,20X2,20X1,Current assets:,Current Liabilities:,Cash and equivalents,$140,$107,Accounts payable,$213,$197,Ac

4、counts receivable,294,270,Notes payable,50,53,Inventories,269,280,Accrued expenses,223,205,Other,58,50,Total current liabilities,$486,$455,Total current assets,$761,$707,Long-term liabilities:,Fixed assets:,Deferred taxes,$117,$104,Property, plant, and equipment,$1,423,$1,274,Long-term debt,471,458,

5、Less accumulated depreciation,-550,-460,Total long-term liabilities,$588,$562,Net property, plant, and equipment,873,814,Intangible assets and other,245,221,Stockholders equity:,Total fixed assets,$1,118,$1,035,Preferred stock,$39,$39,Common stock ($1 per value),55,32,Capital surplus,347,327,Accumul

6、ated retained earnings,390,347,Less treasury stock,-26,-20,Total equity,$805,$725,Total assets,$1,879,$1,742,Total liabilities and stockholders equity,$1,879,$1,742,The assets are listed in order by the length of time it normally would take a firm with ongoing operations to convert them into cash.Cl

7、early, cash is much more liquid than property, plant and equipment.,Balance Sheet Analysis,When analyzing a balance sheet, the financial manager should be aware of three concerns:Accounting liquidityDebt versus equityValue versus cost,Accounting Liquidity,Refers to the ease and quickness with which

8、assets can be converted to cash.Current assets are the most liquid.Some fixed assets are intangible.The more liquid a firms assets, the less likely the firm is to experience problems meeting short-term obligations.Liquid assets frequently have lower rates of return than fixed assets.,Debt versus Equ

9、ity,Generally, when a firm borrows it gives the bondholders first claim on the firms cash flow.Thus shareholders equity is the residual difference between assets and liabilities.,Value versus Cost,Under GAAP (Generally Accepted Accounting Principles ) audited financial statements of firms in the U.S

10、. carry assets at cost.Market value is a completely different concept.,The Income Statement,The income statement measures performance over a specific period of time.The accounting definition of income is,U.S.C.C. Income Statement,(in $ millions),20X2,Income Statement,U.S. COMPOSITE CORPORATION,Total

11、 operating revenues,Cost of goods sold,Selling, general, and administrative expenses,Depreciation,Operating income,Other income,Earnings before interest and taxes,Interest expense,Pretax income,Taxes,Current: $71,Deferred: $13,Net income,Retained earnings: $43,Dividends: $43,The operations section o

12、f the income statement reports the firms revenues and expenses from principal operations,$2,262,- 1,655,- 327,- 90,$190,29,$219,- 49,$170,- 84,$86,(in $ millions),20X2,Income Statement,U.S. COMPOSITE CORPORATION,Total operating revenues,$2,262,Cost of goods sold,- 1,655,Selling, general, and adminis

13、trative expenses,- 327,Depreciation,- 90,Operating income,$190,Other income,29,Earnings before interest and taxes,$219,Interest expense,- 49,Pretax income,$170,Taxes,- 84,Current: $71,Deferred: $13,Net income,$86,Retained earnings: $43,Dividends: $43,The non-operating section of the income statement

14、 includes all financing costs, such as interest expense.,U.S.C.C. Income Statement,(in $ millions),20X2,Income Statement,U.S. COMPOSITE CORPORATION,Total operating revenues,Cost of goods sold,Selling, general, and administrative expenses,Depreciation,Operating income,Other income,Earnings before int

15、erest and taxes,Interest expense,Pretax income,Taxes,Current: $71,Deferred: $13,Net income,Retained earnings: $43,Dividends: $43,Usually a separate section reports as a separate item the amount of taxes levied on income.,$2,262,- 1,655,- 327,- 90,$190,29,$219,- 49,$170,- 84,$86,U.S.C.C. Income State

16、ment,(in $ millions),20x2,Income Statement,U.S. COMPOSITE CORPORATION,Total operating revenues,Cost of goods sold,Selling, general, and administrative expenses,Depreciation,Operating income,Other income,Earnings before interest and taxes,Interest expense,Pretax income,Taxes,Current: $71,Deferred: $1

17、3,Net income,Retained earnings: $43,Dividends: $43,Net income is the “bottom line”.,$2,262,- 1,655,- 327,- 90,$190,29,$219,- 49,$170,- 84,$86,U.S.C.C. Income Statement,bottom line: because it is typically found on the last line of a companys income statement.,Income Statement Analysis,There are thre

18、e things to keep in mind when analyzing an income statement:GAAPNon Cash ItemsTime and Costs,Generally Accepted Accounting Principles,GAAPThe matching principal of GAAP dictates that revenues be matched with expenses. Thus, income is reported when it is earned, even though no cash flow may have occu

19、rred 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 Analysis,Non Cash ItemsDepreciation (or amortization) is the most apparent. No firm ever writes a check for “depreciation”.Another noncash item is deferred taxes, which does not represent a cash flow.,Income Statement Analysis,

20、Time and CostsIn 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.In the long run, all inputs of production (and hence costs) are variable.Financial accountants do not distinguish between variable costs a

21、nd 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, and manufacturing overhead used in making its products. Period costs （期间费用）are not a nece

22、ssary part of the manufacturing process and are usually associated with the selling function of the business or its general administration.,Net Working Capital,NWC is usually growing with the firm.,The Balance Sheet of the U.S.C.C.,Liabilities (Debt),Assets,20X2,20X1,and Stockholders Equity,20X2,20X

23、1,Current assets:,Current Liabilities:,Cash and equivalents,$140,$107,Accounts payable,$213,$197,Accounts receivable,294,270,Notes payable,50,53,Inventories,269,280,Accrued expenses,223,205,Other,58,50,Total current liabilities,$486,$455,Total current assets,$761,$707,Long-term liabilities:,Fixed as

24、sets:,Deferred taxes,$117,$104,Property, plant, and equipment,$1,423,$1,274,Long-term debt,471,458,Less accumulated depreciation,-550,-460,Total long-term liabilities,$588,$562,Net property, plant, and equipment,873,814,Intangible assets and other,245,221,Stockholders equity:,Total fixed assets,$1,1

25、18,$1,035,Preferred stock,$39,$39,Common stock ($1 par value),55,32,Capital surplus,347,327,Accumulated retained earnings,390,347,Less treasury stock,-26,-20,Total equity,$805,$725,Total assets,$1,879,$1,742,Total liabilities and stockholders equity,$1,879,$1,742,Here we see NWC grow to $275 million

26、 in 20X2 from $252 million in 20X1.,This increase of $23 million is an investment of the firm.,Financial Cash Flow,In finance, the most important item that can be extracted from financial statements is the actual cash flow of the firm.Since there is no magic in finance, it must be the case that the

27、cash from received from the firms assets must equal the cash flows to the firms creditors and stockholders.,Financial Cash Flow of the U.S.C.C.,Cash Flow of the Firm,Operating cash flow,$238,(Earnings before interest and taxes,plus depreciation minus taxes),Capital spending,-173,(Acquisitions of fix

28、ed assets,minus sales of fixed assets),Additions to net working capital,-23,Total,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus retirement of debt,minus long-term debt financing),Equity,6,(Dividends plus repurchase of,equity minus new equity financing),Total,$42,Operating Cash Flow:

29、EBIT$219Depreciation $90Current Taxes($71)OCF$238,Financial Cash Flow of the U.S.C.C.,(in $ millions),20X2,Financial Cash Flow,U.S. COMPOSITE CORPORATION,Cash Flow of the Firm,Operating cash flow,$238,(Earnings before interest and taxes,plus depreciation minus taxes),Capital spending,-173,(Acquisiti

30、ons of fixed assets,minus sales of fixed assets),Additions to net working capital,-23,Total,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus retirement of debt,minus long-term debt financing),Equity,6,(Dividends plus repurchase of,equity minus new equity financing),Total,$42,Capital Sp

31、endingPurchase of fixed assets $198Sales of fixed assets (25)Capital Spending $173,(in $ millions),20X2,Financial Cash Flow,U.S. COMPOSITE CORPORATION,Cash Flow of the Firm,Operating cash flow,$238,(Earnings before interest and taxes,plus depreciation minus taxes),Capital spending,-173,(Acquisitions

32、 of fixed assets,minus sales of fixed assets),Additions to net working capital,-23,Total,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus retirement of debt,minus long-term debt financing),Equity,6,(Dividends plus repurchase of,equity minus new equity financing),Total,$42,NWC grew to $

33、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.,(in $ millions),20X2,Financial Cash Flow,U.S. COMPOSITE CORPORATION,Cash Flow of the Firm,Operating cash flow,$238,(Earnings before interest and taxes,plus depreciat

34、ion minus taxes),Capital spending,-173,(Acquisitions of fixed assets,minus sales of fixed assets),Additions to net working capital,-23,Total,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus retirement of debt,minus long-term debt financing),Equity,6,(Dividends plus repurchase of,equity

35、 minus new equity financing),Total,$42,Financial Cash Flow of the U.S.C.C.,Financial Cash Flow of the U.S.C.C.,(in $ millions),20X2,Financial Cash Flow,U.S. COMPOSITE CORPORATION,Cash Flow of the Firm,Operating cash flow,$238,(Earnings before interest and taxes,plus depreciation minus taxes),Capital

36、 spending,-173,(Acquisitions of fixed assets,minus sales of fixed assets),Additions to net working capital,-23,Total,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus retirement of debt,minus long-term debt financing),Equity,6,(Dividends plus repurchase of,equity minus new equity financ

37、ing),Total,$42,Cash Flow to CreditorsInterest$49Retirement of debt 73 Debt service 122Proceeds from new debt sales (86)Total36,Financial Cash Flow of the U.S.C.C.,(in $ millions),20X2,Financial Cash Flow,U.S. COMPOSITE CORPORATION,Cash Flow of the Firm,Operating cash flow,$238,(Earnings before inter

38、est 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,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus retirement of debt,minus long-term debt financing),Equity,6,(Dividen

39、ds plus repurchase of,equity minus new equity financing),Total,$42,Cash Flow to StockholdersDividends $43Repurchase of stock 6 Cash to Stockholders 49Proceeds from new stock issue (43)Total $6,Financial Cash Flow of the U.S.C.C.,(in $ millions),20X2,Financial Cash Flow,U.S. COMPOSITE CORPORATION,Cas

40、h Flow of the Firm,Operating 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,$42,Cash Flow of Investors in the Firm,Debt,$36,(Interest plus re

41、tirement of debt,minus long-term debt financing),Equity,6,(Dividends plus repurchase of,equity minus new equity financing),Total,$42,The cash flow received from the firms assets must equal the cash flows to the firms creditors and stockholders:,Executive Paper,Executive Paper,Executive Paper,Executi

42、ve Paper,Executive Paper,Leverage Ratios,Leverage Ratios,Total debt,ratio,=,total liabilities,total assets,利息保障率（Debt Service Coverage Ratio/Times interest earned） 现金流偿债能力比率（Cash Coverage Ratio）,Liquidity Ratios,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,Efficien

43、cy Ratios,存货周转天数,应收帐款平均收回期,Profitability Ratios,Profitability Ratios,Market Value Ratios,股息收益率,Market Value Ratios,The DuPont System,A breakdown of ROE and ROA into component ratios:,The DuPont System,The DuPont System,assetturnover,profitmargin,The DuPont System,The DuPont System,leverageratio,assetturnover,profitmargin,debtburden,