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Chapter 2 Financial Statements, Taxes and Cash Flow

Chapter 2 Financial Statements, Taxes and Cash Flow. Balance Sheet Income Statement Taxes Cash flow. Clicker Question. Honestly, compared to the other people in this room, rate your automobile driving skills: A. much better than average B. somewhat better than average

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Chapter 2 Financial Statements, Taxes and Cash Flow

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  1. Chapter 2Financial Statements, Taxes and Cash Flow Balance Sheet Income Statement Taxes Cash flow Chapter 2: Financial Statements, Taxes, and Cash Flow

  2. Clicker Question Honestly, compared to the other people in this room, rate your automobile driving skills: A. much better than average B. somewhat better than average C. about average D. somewhat worse than average E. much worse than average Chapter 1: Introduction to Financial Management

  3. Balance Sheet • Current Assets • Long Term (Fixed) Assets • Current Liabilities • Long Term Liabilities • Equity/Net Worth • Ball Corporation (NYSE: BLL) Chapter 2: Financial Statements, Taxes, and Cash Flow

  4. Balance Sheet • Definition: Chapter 2: Financial Statements, Taxes, and Cash Flow

  5. Balance Sheet “Box” Chapter 2: Financial Statements, Taxes, and Cash Flow

  6. Balance Sheet • Net Working Capital • Current assets less current liabilities Chapter 2: Financial Statements, Taxes, and Cash Flow

  7. Balance Sheet • Book Value of Equity • Assets less liabilities • Market Value of Equity • Market price times shares outstanding Chapter 2: Financial Statements, Taxes, and Cash Flow

  8. Balance Sheet “Identities” • Total Assets = • Total Assets = Chapter 2: Financial Statements, Taxes, and Cash Flow

  9. Balance Sheet “Identities” • Total Liabilities = • Total Liabilities = Chapter 2: Financial Statements, Taxes, and Cash Flow

  10. Clicker Question Calculate Net Fixed Assets, given: Net working capital = 1,100Current liabilities = 2,200Long-term liabilities = 4,500Equity = 2,000A. 8,700B. 5,400C. 4,500D. 3,300 Chapter 1: Introduction to Financial Management

  11. Income Statement • Accrual versus Cash Accounting Chapter 2: Financial Statements, Taxes, and Cash Flow

  12. Income Statement Revenue - Cost of revenue - Selling, general, administrative - Depreciation = Earnings before interest and taxes - Interest = Earning before tax - Tax = Net income Ball Corporation (NYSE: BLL) Chapter 2: Financial Statements, Taxes, and Cash Flow

  13. Income Statement Dividends per share (DPS) Earnings per share (EPS) Chapter 2: Financial Statements, Taxes, and Cash Flow

  14. Taxes • Progressive Tax System • Marginal Tax Rate • Average Tax Rate Chapter 2: Financial Statements, Taxes, and Cash Flow

  15. Chapter 1: Introduction to Financial Management

  16. Clicker Question Calculate the tax on $150,000 taxable earnings, given the tax table below: A. 22,250 B. 23,500 C. 41,750 D. 113,900 E. 152,100 Chapter 1: Introduction to Financial Management

  17. Clicker Question • Between 1913 and 2003, what was the lowest top marginal tax rate paid by individuals? A. 7% B. 10% C. 15% D. 17% E. 19% Chapter 2: Financial Statements, Taxes, and Cash Flow

  18. Clicker Question • Between 1913 and 2003, what was the highest top marginal tax rate paid by individuals? A. 38% B. 50% C. 58% D. 77% E. 92% Chapter 2: Financial Statements, Taxes, and Cash Flow

  19. Clicker Question What is the estimated percentage of US corporations that paid NO federal taxes between 1996 and 2000? A. 10% B. 20% C. 40% D. 60% E. 80% Chapter 2: Financial Statements, Taxes, and Cash Flow

  20. Cash flow • Operating Cash Flow • OCF = EBIT + Dep – Tax • Capital Spending • CapX = FA1 – FA0 + Dep Chapter 2: Financial Statements, Taxes, and Cash Flow

  21. Cash flow • Change in Net Working Capital • ΔNWC = NWC1 – NWC0 Chapter 2: Financial Statements, Taxes, and Cash Flow

  22. Cash flow • CF from Assets (Free Cash Flow) • FCF = OCF – CapX – ΔNWC Chapter 2: Financial Statements, Taxes, and Cash Flow

  23. Cash flow • CF from Assets (Free Cash Flow) Alternate definition • FCF = CF to creditors + CF to shareholders Chapter 2: Financial Statements, Taxes, and Cash Flow

  24. Cash flow (sources and uses) Chapter 2: Financial Statements, Taxes, and Cash Flow

  25. Source or Use? Chapter 1: Introduction to Financial Management

  26. Chapter-end Homework Problems • Chapter 2 • Problems 1, 3, 5, 7, 9, 11-13 Chapter 2: Financial Statements, Taxes, and Cash Flow

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