Financial Statements Cash Flow helps assess:

Balance Sheet: ASSETS = LIABILITIES + EQUITIES The company's ability to generate positive f
Income Statement:REVENUES - EXPENSES = NET INCOME The company's ability to meets its obligation
Statement of Cash Operating,
Flows: Investing, and Financing activities The company's need for external financing.
Statement of Earnings:
Beginning RE + Net Income - Dividends = End RE The reasons for differences between the com
Depreciation Expense (Asset=Cost - Residual Value)/Estimated Useful Life
Both the cash and noncash aspects of the co
Ratios
Liquidity: >1 is good - Quick is cash
ROE,w/in
ROAaabove,
yr. under D&C Operating activities include all the transac
Solvency: DtA<1 is good, TIE higher = better Cash Inflows
AT: ability to generate sales from assets. From sale of goods or service
Average assets = (assets at beginning of period + assets at end)/2 From returns on loans (interest) and equity
IT: how good you are at managing your inventory. Cost of Goods Sold/AvgCash Outflows
Inventory
Turnover = when CGS = inventory. Then you sell more… Avg. Inventory To suppliers
staysfor
same
inventory
RT: how many times you turn over your receivables. Makes sure you To collect
employers
on A/Rs.
for services
ACP indicates the number of days it takes you to collect. To government for taxes Current Asst.
Cash Flows To lenders for interestCurrent Liab.
Specific Identification - for low volume, high price items like cars To others for expenses
Weighted average cost - Total cost of goods/Total units -- smooths Investing
price changes
activities= buy/sell long term in
LIFO - COGS is more current Cash Inflows
FIFO - ending inventory moreAssetcurrent
Impairment Loss (L,-SE)2.5 M From sale of PPE
Assets | Flight Equipment (-A) 2.5 MFrom sale of debt or equity securities of oth
Intangible - Not physical, monetary, or well measurable. From collection of principle on loans to othe
Tangible - Money, land, holdings, natural resources, etc. Cash Outflows
Repairs / Additions To purchase PPE
Repairs are expenses; they bring something back to normal function To purchase debt or equity securities of oth
This means that they are on the income statement and lower income To ASAP.
make loans to other entities
Additions can be treated as capital investments since they have a benefit.
Financing activities= Mostly activities with
This means that they're on the BS and don't immediately lower income. Cash Inflows
Depreciation From sale of equity securities
The current year’s depreciation is an expense on the income statement.
From issuance of debt (bonds and notes)
Accumulated depreciation represents the depreciation taken on theCash assetOutflows
since its purchase, and is deducted from the asset’s cost on the balance
To stockholders
sheet. as dividends
Straight-Line Depreciation To redeem long-term debt or reacquire long
Yearly Depreciation Expense is (asset cost - residual value)/useful life
Units-of-Production Depreciation Method Indirect method to get cash flow - start with
Depreciation Rate = (cost - residual value)/life in units of production Common adjustments to NI
Depreciation Expense = Depreciation Rate * number of units produced Depreciation
that year and amortization expenses
Accelerated Depreciation Method Gain or loss on disposition of assets.
Annual Expense = (Cost - Accum. Deprec.) * (DBR/Useful Life in Years) Change in current assets or liabilities.
DBR is 2 if it is double-declining. Most common. Note that you have to do each
year individually to do the next year (because of cost-a.d.) 1000 shares at .01 par value and valuead a
Disposing of Assets --> Stop depreciating when (C-AD) = Cash
BV 10,000
1. Update depreciation to date of disposal Common stock at par 10
2. Record cash received (a debit) and write off accumulated depreciationAdditional
(debit)paid
OR in capital 9,990
2. Record a gain (credit) or loss (debit) and write off the asset costTreasury
(credit) shares have been repurchased by
Gain if: Cash>BV; Loss if: Cash<BV, neither if equal. Treasury stock 5,000 <- Purchase
Goodwill is leftover from purchase of a company (additional to net worth)
Cash 5,000 Resale ->
inventory turnover ratio (COGS/Average Inventory) *No gain or loss, just PIC
 y to generate positive future cash flows.
y to meets its obligations and pay dividends.
for external financing.
rences between the company's net income and associated cash.
ncash aspects of the company's investing and financing transctns.

s include all the transactions/events related to earnings process

s (interest) and equity securities (dividends)

Change in acct balance in yr.

Increase Decrease
Subtract from NIAdd to NI
Add to NISubtract from NI

s= buy/sell long term investm't, PPE, moneylending, loan collect'g

Stock dividend yield

equity securities of other=entities
dividends per share
nciple on loans to other market
entities price per share

equity securities of other entities

s= Mostly activities with shareholders, such as paying dividends.

Preferred dividend = Par * % * #shares

bt (bonds and notes)
Earnings per share =
Net income
m debt or reacquireAvg.
long-term
Shares notes.
Outstanding

et cash flow - start with income statement and then adjust it.

mortization expenses
position of assets.
assets or liabilities.

ar value and valuead at 10$/share (journal entry)

Stock options have an exercise price. If

the stock is valued below, they're worthless.
e been repurchased by the firm. Contra-account to Shareholders Equity
Cash 10,000
Treasury stock 5,000
Additional PIC 5,000