ADDITIONAL NOTES FOR CHAPTER 2

USER AND SOURCES

1. Step 1- Calculate the changes (∆𝑡1 − ∆𝑡0 ) in the balance sheet.

2. Step 2- Identify the sources and uses
 Sources of funds
 Asset (decrease) Liability (increase)
 Net income / EAT/ Net profit after tax
 Depreciation and other non-cash expenditures
 Uses of funds
 Asset (increase) liability (decrease)
 Net loss operations
 Dividend payment
∆𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑
𝑜𝑟
𝐵𝑎𝑙𝑎𝑛𝑐𝑒𝑑 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑡0 + 𝐸𝐴𝑇 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑡1 = 𝐵𝑎𝑙𝑎𝑛𝑐𝑒𝑑 𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑡1
*notes the groups of net income such as EAT/Profit tax/ Net profit/
Net Profit after tax/ Net income
3. Calculate NCE
𝑁𝐶𝐸 = 𝑁𝑒𝑡 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡1 − 𝑁𝑒𝑡 𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡0 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
*Student need to identify weather NCE is in the group of sources and uses of fund based
on the ∆ 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑁𝐶𝐸 . If the ∆ 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝑵𝑪𝑬 increase (+) it indicate uses of fund
while if the ∆ 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝑵𝑪𝑬 decrease (-) it indicate sources of fund.
* Always try to get the value of depreciation from income statement due to the actual
depreciation.
4. Make a statement of sources and uses of fund.

Additional formula
𝑵𝑭𝑨 = 𝑮𝒓𝒐𝒔𝒔 𝒇𝒊𝒙𝒆𝒅 𝑨𝒔𝒔𝒆𝒕 − 𝑨𝒄𝒄𝒖𝒎𝒖𝒍𝒂𝒕𝒆𝒅 𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏