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By Dr. Gagan Kukreja
Income Statement
SALES
- EXPENSES
= PROFIT
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Income Statement
Revenue
SALES
- EXPENSES
= PROFIT
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Income Statement
SALES
- EXPENSES
= PROFIT
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Income Statement
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Income Statement
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Income Statement
= PROFIT
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Income Statement
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Income Statement
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SALES Income Statement
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses
OPERATING INCOME (EBIT)
- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS 10
SALES Income Statement
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses
OPERATING INCOME (EBIT)
- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS 11
SALES Income Statement
- Cost of Goods Sold
GROSS PROFIT
- Operating Expenses
OPERATING INCOME (EBIT)
- Interest Expense
EARNINGS BEFORE TAXES (EBT)
- Income Taxes
EARNINGS AFTER TAXES (EAT)
- Preferred Stock Dividends
- NET INCOME AVAILABLE
TO COMMON STOCKHOLDERS 12
Balance Sheet
Outstanding
Debt
Total Assets = +
Shareholders’
Equity
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Balance Sheet
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Balance Sheet
Assets
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Balance Sheet
Assets Liabilities (Debt) & Equity
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Balance Sheet
Assets Liabilities (Debt) & Equity
Current Assets Current Liabilities
Cash Accounts Payable
Accrued Expenses
Marketable Securities Short-term notes
Accounts Receivable Long-Term Liabilities
Inventories Long-term notes
Prepaid Expenses Mortgages
Equity
Fixed Assets Preferred Stock
Machinery & Equipment Common Stock (Par value)
Buildings and Land Paid in Capital
Retained Earnings
Other Assets
Investments & patents
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Assets
• Current Assets:
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
– Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
– Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
• Fixed Assets:
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
– Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
• Fixed Assets: machinery
and equipment, buildings,
and land.
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
– Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
• Fixed Assets: machinery and equipment,
buildings, and land.
• Other Assets:
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
– Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
• Fixed Assets: machinery and equipment,
buildings, and land.
• Other Assets: any asset that is not a current
asset or fixed asset.
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Assets
• Current Assets: assets that are relatively
liquid, and are expected to be converted to
cash within a year.
– Cash, marketable securities, accounts
receivable, inventories, prepaid expenses.
• Fixed Assets: machinery and equipment,
buildings, and land.
• Other Assets: any asset that is not a current
asset or fixed asset.
– Intangible assets such as patents and copyrights.
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Financing
• Debt Capital:
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Financing
• Debt Capital: financing provided by a
creditor.
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Financing
• Debt Capital: financing provided by a
creditors.
• Short-term debt:
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Financing
• Debt Capital: financing provided by a
creditor.
• Short-term debt: borrowed money that
must be repaid within the next 12 months.
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Financing
• Debt Capital: financing provided by a
creditor.
• Short-term debt: borrowed money that
must be repaid within the next 12 months.
– Accounts payable, other payables such as
interest or taxes payable, accrued expenses,
short-term notes & bank overdraft.
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Financing
• Debt Capital: financing provided by a
creditor.
• Short-term debt: borrowed money that
must be repaid within the next 12 months.
– Accounts payable, other payables such as
interest or taxes payable, accrued expenses,
short-term notes.
• Long-term debt:
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Financing
• Debt Capital: financing provided by a
creditor.
• Short-term debt: borrowed money that
must be repaid within the next 12 months.
– Accounts payable, other payables such as
interest or taxes payable, accrued expenses,
short-term notes.
• Long-term debt: loans from banks or other
sources that lend money for longer than 12
months.
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Financing
• Equity Capital:
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Financing
• Equity Capital: shareholders’ investment in
the firm.
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Financing
• Equity Capital: shareholders’ investment in
the firm.
• Preferred Stockholders:
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Financing
• Equity Capital: shareholders’ investment in
the firm.
• Preferred Stockholders: receive fixed
dividends, and have higher priority than
common stockholders in event of liquidation
of the firm.
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Financing
• Equity Capital: shareholders’ investment in
the firm.
• Preferred Stockholders: received fixed
dividends, and have higher priority than
common stockholders in event of liquidation
of the firm.
• Common Stockholders:
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Financing
• Equity Capital: shareholders’ investment in
the firm.
• Preferred Stockholders: received fixed
dividends, and have higher priority than
common stockholders in event of liquidation
of the firm.
• Common Stockholders: residual owners of
a business. They receive whatever is left
after creditors and preferred stockholders
are paid.
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Free Cash Flows
Free cash flow:
Cash flow that is free and available to be
distributed to the firm’s investors (both debt
and equity investors)
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Free Cash Flows
Firm’s Operating Firm’s Financing
Free cash flows = Free cash flows
- change in stock