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BA II Plus 2 . 9 Enter Financial Statements, Cash Flow, and Taxes
Balance sheet Income statement Accounting income vs. cash flow MVA and EVA Federal tax system
The Annual Report Balance sheet – provides a snapshot of a firm’s financial position at one point in time.
Income statement – summarizes a firm’s revenues and expenses over a given period of time.
Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends.
Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.
Balance Sheet: Assets Cash Accounts Receivable Inventories Total Current Assets Gross Fixed Assets Less: Depreciation Net Fixed Assets Total Assets 2012 7,282 632,160 1,287,360 1,926,802 1,202,360 263,160 939,790 2,866,592 2011 57,600 351,200 715,200 1,124,000 491,000 146,200 344,800 1,468,800
828 146.568 723. and the company pays a 40 percent tax rate.960 100.866. Pearson Brothers recently reported an EBITDA of $7.600 58.160 636.528.960) (106.600 1.960 (130.000 0.864.000 2.25 40.768 1.000 1.5 million and $1.650.988) 116.900 190.428 43.592 2012 6.000 358.800 2011 3.640 87. What was the company's interest expense for the year? [Hint: Divide $3 million by (1 .808 489.50 40. recently reported net income of $3 million.328 18.T) = 0.88 0.000 481.000 -1.034.6 to find taxable income.432. EBT Taxes Net income Other data No.602 0.948) 136.000 100.8 million 2 .432 460. Its operating income Income Statement (EBIT) was $6 million.11 2.592 492.000 32.672 209.012 (266.468.432 460.600 200.768 663. Little Books Inc.988 (13.] 2.000 519.176) 2011 145.000 203.784) (160.600 323. of shares EPS DPS Stock price Lease pmts Liabilities and Equity 2012 544.000 5.592 2. & Amort.000 136.Accts payable Notes payable Accruals Total Current Liabilities Long-term debt Common stock Retained earnings Total Equity Total L & E Income statement Sales COGS Other expenses EBITDA Depr. EBIT Interest Exp.22 8.
569 NOPAT11 = $114. The company has $2. Statement of related earnings In its most recent financial statements. its balance sheet showed $780 million of retained earnings. reported $50 million of net income and $810 million of retained earnings.282 + $632.948(1 – 0.592 3. What were the total dividends paid to shareholders during the most recent year? Did the expansion create additional net operating profits after taxes (NOPAT)? NOPAT = EBIT (1 – Tax rate) NOPAT12 = -$130.176) (11. What was the company's depreciation and amortization expense? Statement of Retained Earnings (2011) Balance of Retained Earnings 12/31/11 Add: Net Income 2012 Less: Dividends paid Balance of Retained Earnings 12/31/12 $203.832.000) 32. Newhouse Inc.160 + $1.4) = -$130.360) – ($544.790 = $1.768 (160.948(0.0 million of interest expense and the corporate tax rate is 40 percent.257 What effect did the expansion have on net operating working capital? NOWC Non-interest bearing Current Liabilities (Acct pay + Accruals) NOWC12 = ($7.042 = - Current Assets (cash + Acct Rec + Inv) NOWC11 = $842.600) = $893.160 + $489.042 + $939.400 What effect did the expansion have on operating capital? Operating capital = NOWC + Net Fixed Assets Operating Capital12 = $893.832 3 .Income statement of net income.6) = -$78. The previous year.287.
391 OCF11 = $114. a firm has to more than just cover operating costs.960 = $38. What is the company's approximate net cash flow? Assume the firm has no amortization expense. What is the firm’s EVA? Assume the firm’s after-tax percentage cost of capital 4 .187. which includes the cost of equity. its net cash flow. and its operating cash flow? Economic Value Added (EVA) EVA = After-tax Operating Income __ After-tax Capital costs = NOPAT – After-tax Cost of Capital (Operating Capital) EVA Concepts In order to generate positive EVA. and it faces a 40 percent tax rate.257 + $18.900 = $106. EVA takes into account the total cost of capital. It must also provide a return to those who have provided the firm with capital.860 4. recently reported net income of $3. Kendall Comers Inc.Operating Capital11 = $1. OCF12 = NOPAT + Dep = ($78. The company's Cash flow depreciation expense is $200. The company's Net cash flow depreciation expense was $500. Assume that the firm has no amortization expense.216 NCF11 = $87.176) + $116. The Klaven Corporation has operating income (EBIT) of $750. What are its net income.000.960 = -$43.157 5.1 million.900 = $133.200 What is your assessment of the expansion’s effect on operations? What effect did the expansion have on net cash flow and operating cash flow? NCF12 = NI + Dep = ($160. Klaven is 100 percent equity financed.569) + $116.000.000.960 + $18.
000 EBT $ 2.500.569 .was 10% in 2011 and 13% in 2012.000.000.257 – (0.463 6. and the company is in the 40 percent tax bracket.000.000.000 Taxes (40%) 1.500.$238.000 EBITDA $ 7.000 Operating costs excluding depreciation and amortization 7. The company's after-tax cost of that capital is 11.832.$118.000 Interest 1.000.720 = -$4. What is Bailey's net cash flow for the year? c. EVA Kordell Company recently reported $170.832) -$78. The company's total operating capital is $800. What is Bailey's EVA for the year? Did the expansion increase or decrease MVA? MVA = Market value __ of equity Equity capital supplied 5 .000. What is Kordell's EVA? 7. a.000 Depreciation and amortization 3.268 -$316. What is Bailey's NOPAT for the year? b.10)($1.837 EVA11 = $114.569 – (0.000 in operating income (EBIT).500.625 percent. Bailey Corporation recently reported the following income statement (dollars Cash flow are in thousands): Sales $14. What is Bailey's operating cash flow for the year? e.187.257 .000 EBIT $ 4.200) = $114.000. EVA12 = = = = NOPAT – (A-T cost of capital) (Operating Capital) -$78.000 Bailey's total operating capital is $20 billion and its after-tax cost of capital is 10 percent.000 Net income $ 1.13)($1.
$5.500 of operating costs other than depreciation.250 of depreciation.750 of sales.550.000 .500 of bonds that carry a 6. These expenditures were necessary for it to sustain operations and generate future sales and cash flows.8. Taxable Income $0 . What was its free cash flow? Federal Income Tax System Corporate and Personal Taxes Both have a progressive structure (the higher the income. The company's current stock price is $60 per share. and $1.000 50. Investment in Plant and Equipment) .75. the higher the marginal tax rate). Corporations Rates begin at 15% and rise to 35% for corporations with income over $10 million. The company had $3. the firm had expenditures on fixed assets and net working capital that totaled $1.000 Marginal Tax Rates 15% 25% 6 . Henderson Industries has $500 million of common equity on its balance sheet. Also subject to state tax (around 5%). During the year.50. Shrives Publishing recently reported $10. How many shares of the company's stock are currently outstanding? Free Cash Flows Free Cash Flows = OCF – Gross Inv in Operating Capital Gross Investment in Oper Cap = Net Inv in Oper Cap + Depreciation Net Inv in Oper Cap. = Change in NOWC + Change in Operating Long Term Assets (less depr) Free Cash Flow = NOPAT – Net Investment in Operating Capital Total Operating Assets = NOWC + Oper LT Assets (ex. and its Market Value Added (MVA) is $130 million.25% interest rate. and its federal-plus-state income tax rate was 35%.
333 38% 18.15. and at the capital gains rate if held for more than a year.000 . Dividends paid – paid out of after-tax income. Interest earned – usually fully taxable (an exception being interest from a (muni”).000 .000 34% 10. 2. dividends received from other corporations are largely exempt from taxation for a corporation Corporate Tax Rate: Average versus Marginal Tax Rates 1. A portion of dividends received by corporations is tax excludable. in order to avoid “triple taxation”.18.000 34% 100.000 . capital gains for individuals are generally taxed as ordinary income if held for less than a year. This means that dividends received by individuals are taxed twice – legislation may change this.000.333.000 35% 15. but usually not for individuals (interest on home loans being the exception).333 + 35% Taxes Corporations pay taxes at the corporate income tax rate Taxes are paid by individuals on dividends received by them that are paid out from net income.333.000.335.000 39% 335.100.000 . 7 . the tax code allows firms to carry losses back to offset profits in previous years or forward to offset profits in the future. Capital gains – defined as the profits from the sale of assets not normally transacted in the normal course of business.000. Corporations face somewhat different rules.10. Average tax rate: Marginal tax rate: Total taxes paid Total taxable income amount of tax payable on the next dollar earned - Tax treatment of various uses and sources of funds Interest paid – tax deductible for corporations (paid out of pre-tax income). Dividends received – taxed as ordinary income for individuals (“double taxation”). Tax Loss Carry-Back and Carry-Forward – since corporate incomes can fluctuate widely. To avoid triple taxation.75.000 .000.
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