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Lecture Intermediate corporate finance – Chapter 7: Accounting for financial management

Chapter 7 - Accounting for financial management. This chapter presents the following content: Income statement, balance sheet, statement of cash flows, accounting income versus cash flow, MVA and EVA corporate taxes. | Chapter 7 Accounting for Financial Management Topics in Chapter Income statement Balance sheet Statement of cash flows Accounting income versus cash flow MVA and EVA Corporate taxes Income Statement 2008 2009 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) What happened to sales and net income? Sales increased by over $2.4 million. Costs shot up by more than sales. Net income was negative. However, the firm received a tax refund since it paid taxes of more than $63,424 during the past two years. Balance Sheet: Assets 2008 2009 Cash $ 9,000 $ 7,282 S-T invest. 48,600 20,000 AR 351,200 632,160 Inventories 715,200 1,287,360 Total CA 1,124,000 1,946,802 Gross FA 491,000 1,202,950 Less: Depr. 146,200 263,160 Net FA 344,800 939,790 Total assets $1,468,800 $2,886,592 Effect of Expansion on Assets Net fixed assets almost tripled in size. AR and inventory almost doubled. Cash and short-term investments fell. Statement of Retained Earnings, 2009 Balance of ret. earnings, 12/31/2008 $203,768 Add: Net income, 2009 (95,136) Less: Dividends paid, 2009 (11,000) Balance of ret. earnings, 12/31/2009 $97,632 Balance Sheet: Liabilities & Equity 2008 2009 Accts. payable $ 145,600 $ 324,000 Notes payable 200,000 720,000 Accruals 136,000 284,960 Total CL 481,600 1,328,960 Long-term debt 323,432 1,000,000 Common stock 460,000 460,000 Ret. earnings 203,768 97,632 Total equity 663,768 557,632 Total L&E $1,468,800 $2,886,592 What effect did the expansion have on liabilities & equity? CL increased as creditors and suppliers “financed” part of the expansion. Long-term debt increased to help finance the expansion. The company didn’t issue any stock. Retained earnings fell, due to the year’s negative net income and dividend payment. Statement . | Chapter 7 Accounting for Financial Management Topics in Chapter Income statement Balance sheet Statement of cash flows Accounting income versus cash flow MVA and EVA Corporate taxes Income Statement 2008 2009 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) What happened to sales and net income? Sales increased by over $2.4 million. Costs shot up by more than sales. Net income was negative. However, the firm received a tax refund since it paid taxes of more than $63,424 during the past two years. Balance Sheet: Assets 2008 2009 Cash $ 9,000 $ 7,282 S-T invest. 48,600 20,000 AR 351,200 632,160 Inventories 715,200 1,287,360 Total CA 1,124,000 1,946,802 Gross FA 491,000 1,202,950 Less: Depr. 146,200 263,160 Net FA 344,800 939,790 Total assets $1,468,800 .