Professional Documents
Culture Documents
Financial Statements, Cash Flow, and Taxes
Financial Statements, Cash Flow, and Taxes
CHAPTER 9
Financial Statements,
Cash Flow, and Taxes
Balance sheet
Income statement
Statement of cash flows
Accounting income versus cash flow
MVA and EVA
Personal taxes
Corporate taxes
9-2
Income Statement
2001 2002
Sales 3,432,000 5,834,400
COGS 2,864,000 4,980,000
Other expenses 340,000 720,000
Deprec. 18,900 116,960
Tot. op. costs 3,222,900 5,816,960
EBIT 209,100 17,440
Int. expense 62,500 176,000
EBT 146,600 (158,560)
Taxes (40%) 58,640 (63,424)
Net income 87,960 (95,136)
9-3
What happened to sales and net
income?
Financing Activities
Change in S-T invest. 28,600
Change in notes payable 520,000
Change in long-term debt 676,568
Payment of cash dividends (11,000)
Net cash provided by fin. act. 1,214,168
9 - 11
Summary of Statement of CF
NOWC01 = $793,800.
9 - 18
Operating
= $1,317,842 + $939,790
capital02
= $2,257,632.
Operating
= $1,138,600.
capital01
9 - 19
NOPAT01 = $125,460.
9 - 20
ROIC01 = 11.0%.
9 - 22
The firms cost of capital is 10%. Did
the growth add value?
No. The ROIC of 0.5% is less than the
WACC of 10%. Investors did not get
the return they require.
Note: High growth usually causes
negative FCF (due to investment in
capital), but thats ok if ROIC > WACC.
For example, Home Depot has high
growth, negative FCF, but a high
ROIC.
9 - 23
2001 2002
Stock price $8.50 $2.25
# of shares 100,000 100,000
EPS $0.88 -$0.95
DPS $0.22 $0.11
9 - 25
MVA (Continued)
Corporate Taxes
Individual Taxes
9 - 29
A corporation can:
deduct its interest expenses but
not its dividend payments;
carry-back losses for two years,
carry-forward losses for 20 years.
exclude 70% of dividend income if
it owns less than 20% of the
companys stock
9 - 32
*Dividends - Exclusion
= $10,000 - 0.7($10,000) = $3,000.
9 - 34
Salary $45,000
Dividends 3,000
Personal exemptions (2,900)
Deductions (7,100)
Taxable Income $38,000
9 - 38
Tax Liability:
TL = $4,057.50 + 0.275($38,000-
$27,050)
= $7,068.75.
Marginal Tax Rate = 27.5%.
Average Tax Rate:
Tax rate = $7,068.75/$38,000 = 18.6%.
Or
Tax rate = $7,068.75/$48,000 = 14.7%.
9 - 39
Implications