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1
CHAPTER 3 NEW PROBLEMS
UNDERSTANDING FINANCIAL STATEMENTS
AND CASH FLOW
3-1.
WORKING WITH INCOME STATEMENT
DATA
Net incoe !"#$%$$$
S&'(e) o*t)t'n+in, #$%$$$
Solution
E'(nin,) e( )&'(e !3.$
3-".
WORKING WITH INCOME STATEMENT
DATA
S'/e) !"%$$$
Co)t o0 ,oo+) )o/+ !"$$%$$$
Gene('/ 'n+ '+ini)t('tie e2en)e) !"%$$$
De(eci'tion e2en)e) #%$$$
Inte(e)t e2en)e 1"%$$$
Incoe t'2e) 45%"$$
Solution
Incoe St'teent 'n+ Coon-Si6e+ Incoe St'teent7
S'/e) !"%$$$
Co)t o0 Goo+) )o/+ "$$%$$$
G(o)) P(o0it) 3"%$$$
Gene('/ 8 A+in e2en)e) "%$$$
De(eci'tion e2en)e #%$$$
Tot'/ oe('tin, e2en)e 5$%$$$
Oe('tin, incoe 9EBIT: "%$$$
Inte(e)t e2en)e 1"%$$$
E'(nin,) ;e0o(e t'2e) "
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2
3-3.
WORKING WITH BALANCE SHEET
DATA
C')& $%$$$
Acco*nt (ecei';/e) ';/e !1$%$$
Acco*nt) '>';/e "3%$$$
Tot'/ c*((ent /i';i/itie) 33%$$
Lon,-te( +e;t "$$%$$$
Tot'/ Li';i/itie) "33%$$
Coon Stoc?
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3
Net Wo(?in, C'it'/ !1$
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4
3-5.
WORKING WITH INCOME STATEMENT AND BALANCE SHEET
DATA
S'/e) !$%$$$
Acc**/'te+ +e(eci'tion 14$%$$$
C')& @
Co)t o0 ,oo+) )o/+ !3"$%$$$
Acco*nt (ecei';/e) 53%$$$
De(eci'tion e2en)e) 3#%$$$
Acco*nt) '>';/e %$$$
Inte(e)t e2en)e "%$$$
S&o(t-te( note) '>';/e "4%$$$Incoe t'2e) 4%#$
Inento(ie)
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Acco*nt) (ecei';/e 53%$$$
Inento(> ! 51"%$$
Net Wo(?in, C'it'/ !1';/e) ';/e 1%$$$
Inc(e')e in ,(o)) 0i2e+ '))et)
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Solution
C')& F/o) 0(o Oe('tin, Actiitie)
Net Incoe !1"4%$$$
A+*)tent)7
De(eci'tion 15%$$$
Inc(e')e in 'cco*nt) (ecei';/e 94%$$$:
Inc(e')e in inento(ie) 95%$$$:
Inc(e')e in 'cco*nt '>';/e 0in'ncin, 'ctiitie) !
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Oe('tin, incoe !
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Net prot margin .2% 9.6%
(. Comparison of a!an(e seets an' assettosa!es re!ationsips
Time Warner
2009 2010
$a!es 25&3 26&
Tota! assers 66&059 66&524
$a!estoassets 0.3 0.40
3-A1
COMPUTING FREE ANDE FINANCING CASH FLOWS
DATA
inc(e')e in inento(ie) ! 3"Oe('tin, incoe "1
Dii+en+) "
Inc(e')e in ACCOUNTS PAABLE
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F(ee c')& 0/o) ! ';/e !#%$$$ !4$%$$$
Acc(*e+ /i';i/itie) !#%$$$ !3%$$$
Tot'/ c*((ent /i';i/itie) !13%$$$ !13%$$$
Mo(t,',e '>';/e !5$%$$$ !$
Tot'/ +e;t !""3%$$$ !13%$$$
P(e0e((e+ )toc? !$ !1"$%$$$
Coon )toc? !"$%$$$ !"$%$$$
Ret'ine+ e'(nin,) !
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Se//in,% ,ene('/ 8 '+ini)t('tie 9ent o0 /on,-te( +e;t -5$%$$$
Inc(e')e in (e0e((e+ )toc? 1"$%$$$
P(e0e((e+ )toc? +ii+en+) -1$%$$$
Coon )toc? +ii+en+) -""%$$$
Fin'ncin, c')& 0/o) ! 1
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C')& !"$$ !1$
Acco*nt) Recei';/e Coon )toc? 4$$ 4$$
Ret'ine+ e'(nin,) 5$$ #$$
Tot'/ one() e*it> 1%$$ 1%5$$
Tot'/ /i';i/itie) 'n+ one() e*it> !"%
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Step 2: Calculate the change in the net working capital
1"31"$11 1"31"$1"
C*((ent '))et) !1%"$$ !1%"$$
C*((ent /i';i/itie) "$$ 1$
Net o(?in, c'it'/ !1%$$$ !1%$$
Step 3: Compute the change in fixed and other assets
C&'n,e in ,(o)) 0i2e+ '))et) !
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1$$.$=
3#.1=
1.4=
11.#=
1.=
13.3=
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".=
.=
.5=
13.#=41.=
5.
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1
"$$4 "$1$
100.0% 100.0%
56.1% 55.9%
43.9% 44.1%
23.9% 22.%
1.1% 1.0%
1.3% 0.2%
26.3% 23.9%
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17.6% 20.2%
4.6% 4.4%
0.3% 1.2%
12.% 14.6%
4.5% 5.0%
.2% 9.6%
% Cange
0.2% 0.4%
2.6% 14.7%
1.4% 16.5%
"$$4 "$1$
100.0% 100.0%
79.7% 77.%
20.3% 22.2%
5.9% 5.2%
14.4% 17.0%
1.3% 1.1%
2.5% 1.5%
15.7% 17.4%
5.7% 6.1%
10.0% 11.3%
% Cange
1.9% 9.4%
2.6% 17.%
1.3% 13.5%
Wa!t "isne#
2009 2010
20.3% 22.2%
14.4% 17.0%
)n(rease+"e(rease,
)n(rease+"e(rease,
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10.0% 11.3%
Wa!t "isne#
2009 2010
36&149 3&063
63&117 69&206
0.57 0.55
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c&'n,e
!11%$$$
!%$$$
9!1"%$$$:
!$
!%$$$
!53%$$$
9!"%$$$:
!
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C&'n,e)
!$
9!$:
9!$:
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CHAPTER 3 PROBLEMS
UNDERSTANDING FINANCIAL STAT
AND CASH FLOW
3-1.
REIEW OF FINANCIAL STATEMENTS
DATA
Inento(>
Gene('/ 'n+ '+in. E2en)e)
Coon Stoc?
C')&
Oe('tin, e2en)e)
Note) '>';/e
Inte(e)t e2en)e
De(eci'tion e2en)e
Net S'/e)
Acco*nt) (ecei';/e
Acco*nt) '>';/e
Lon,-Te( De;t
Co)t o0 Goo+) )o/+
B*i/+in,) 'n+ E*ient
Acc**/'te+ De(eci'tion
T'2e)
Ret'ine+ e'(nin,)
Solution
Incoe St'teent7
S'/e)
Co)t o0 Goo+) )o/+
G(o)) P(o0it
Gene('/ 8 A+in e2en)e) #$
De(eci'tion e2en)e $$Tot'/ oe('tin, e2en)e
Oe('tin, incoe 9EBIT:
Inte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
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B'/'nce S&eet7
C')&
Acco*nt) (ecei';/e
Inento(>
Tot'/ c*((ent '))et)
B*i/+in,) 'n+ e*ient
Acc**/'te+ De(eci'tion
Net ;*i/+in,) 'n+ e*ient
Tot'/ '))et)
Acco*nt) '>';/e
Note) '>';/e
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;tTot'/ Li';i/itie)
Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>
Tot'/ /i';i/itie) 'n+ e*it>
3-2#
COMPUTING CASH FLOWS
DATA
Inc(e')e in 'cco*nt) (ecei';/e
Inc(e')e in inento(ie)
Oe('tin, Incoe
Inte(e)t E2en)e
Inc(e')e in 'cco*nt) '>';/e
Dii+en)
Inc(e')e in coon )toc?
Inc(e')e in net 0i2e+ '))et)
De(eci'tion E2en)e
Incoe t'2e)
Be,innni, c')&
Solution
C')& F/o) 0(o Oe('tin, Actiitie)
Net Incoe
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A+*)tent)7
De(eci'tion
Inc(e')e in 'cco*nt) (ecei';/e
Inc(e')e in inento(ie)
Inc(e')e in 'cco*nt '>';/e
Net C')& (oi+e+ ;> oe('tin, 'ctiite)
C')& F/o) 0(o Ine)tin, Acititie)
Inc(e')e in ,(o)) 0i2e+ '))et)
C')& F/o) 0(o Fin'ncin, Acititie)
Inc(e')e in coon )toc?
Dii+en)
Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
Dec(e')e in C')&
Be,innin, C')&
En+in, c')&
Net Incoe oe('tin, incoe J inte(e)t e2en)e J incoe t'2e)
T&e c&'n,e in ,(o)) 0i2e+ '))et) i) e*'/ to t&e c&'n,e in net 0i2e+ '))et) 9!"3:
+e(eci'tion e2en)e 0o( t&e >e'( o0 !1"% (e)*/tin, in ' c&'n,e in ,(o)) 0i2e+ '))et)
3-3.
REIEW OF FINANCIAL STATEMENTS
DATA
De(eci'tion e2en)e
C')&
Lon,-Te( De;t
Net S'/e)
Acco*nt) '>';/e
Gene('/ 'n+ '+in. E2en)e)
B*i/+in,) 'n+ E*ient
Note) '>';/e
Acco*nt) (ecei';/e
Inte(e)t e2en)e
Acc(*e+ e2en)e)
Coon Stoc?
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Co)t o0 Goo+) )o/+
Inento(>
T'2e)
Acc**/'te+ De(eci'tion
P(e'i+ e2en)e)
T'2e) '>';/e
Ret'ine+ e'(nin,)
Solution
Incoe St'teent7
S'/e)
Co)t o0 Goo+) )o/+
G(o)) P(o0it)
Gene('/ 8 A+in e2en)e) 54%$$$
De(eci'tion e2en)e %$$$Tot'/ oe('tin, e2en)e
Oe('tin, incoe 9EBIT:
Inte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
P(e'i+ e2en)e)
Tot'/ c*((ent '))et)
G(o)) B*i/+in,) 'n+ e*ient
Acc**/'te+ De(eci'tion
Net 0i2e+ '))et)
Tot'/ '))et)
Note) '>';/e
Acco*nt) '>';/e
T'2e) '>';/e
Acc(*e+ e2en)e)
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
Tot'/ Li';i/itie)
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Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>
Tot'/ /i';i/itie) 'n+ e*it>
A:
Net Wo(?in, C'it'/
De;t R'tio
B:
Coon-Si6e+ Incoe St'teent7
S'/e) !53%$$$
Co)t o0 Goo+) )o/+ "45%$$$
G(o)) P(o0it) "5%$$$
Gene('/ 8 A+in e2en)e) 54%$$$De(eci'tion e2en)e %$$$
Tot'/ oe('tin, e2en)e 1';/e 3%$$$
Acc(*e+ e2en)e) 5%4$$
Tot'/ c*((ent /i';i/itie) "35%4$$
Lon,-te( +e;t 33
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Tot'/ Li';i/itie) 51%4$$
Coon Stoc? "#4%$$$
Ret'ine+ e'(nin,) ""%4$$
Tot'/ e*it> 1%4$$
Tot'/ /i';i/itie) 'n+ e*it> 1%1"3%#$$
3-';/e
Inte(e)t e2en)e
De(eci'tion e2en)e
Inc(e')e in ;'n? +e;tInc(e')e in 'cc(*e+ e2en)e)
Inc(e')e in ,(o)) 0i2e+ '))et)
Incoe t'2e)
Solution
C')& F/o) 0(o Oe('tin, Actiitie)
Net Incoe
A+*)tent)7
De(eci'tion
Inc(e')e in 'cco*nt) (ecei';/e
Inc(e')e in inento(ie)
Inc(e')e in 'cco*nt '>';/e
Inc(e')e in 'cc(*e+ e2en)e)
Net C')& (oi+e+ ;> oe('tin, 'ctiite)
C')& F/o) 0(o Ine)tin, Acititie)
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Inc(e')e in ,(o)) 0i2e+ '))et)
C')& F/o) 0(o Fin'ncin, Acititie)
Inc(e')e in coon )toc?
Inc(e')e in ;'n? +e;t
Dii+en)
Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
Inc(e')e in c')&
Net Incoe oe('tin, incoe J inte(e)t e2en)e J incoe t'2e)
P(o;/e 3- +oe) not &'e ' n*e(ic'/ )o/*tion.
3-%#INTERPRETING FINANCIAL STATEMENTS AND MEASURING CASH FLO
DATA
A))et)7 "$$4
C')& !"$$
Acco*nt) Recei';/e $
C*((ent '))et) 1%"$$
P/'nt 'n+ e*ient "%"$$
Le))7 'cc**/'te+ +e(eci'tion 91%$$$: Net /'nt 'n+ e*ient 1%"$$
Tot'/ '))et) !"%7 "$$4
Acco*nt) '>';/e !"$$
Note) '>';/e--c*((ent 94=: -
C*((ent /i';i/itie) "$$
Bon+) $$
One() e*it>
Coon )toc? 4$$
Ret'ine+ e'(nin,) 5$$
Tot'/ one() e*it> 1%$$
Tot'/ /i';i/itie) 'n+ one() e*it> !"%
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S'/e) !1%"$$
Co)t o0 ,oo+) )o/+ 5$$
G(o)) (o0it $$
Oe('tin, e2en)e) 3$
De(eci'tion ""$
Net oe('tin, incoe "$
Inte(e)t e2en)e $
Net incoe ;e0o(e t'2e) "$$
T'2e) 9 "
C*((ent '))et) 1%"$$
P/'nt 'n+ e*ient "%$$
Le))7 'cc**/'te+ +e(eci'tion 91%"$$:
Net /'nt 'n+ e*ient 1%
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Li';i/itie) 'n+ E*it>7 "$1$
Acco*nt) '>';/e !1$
Note) '>';/e--c*((ent 94=: 1$
C*((ent /i';i/itie) 3$$
Bon+) $$
One() e*it>
Coon )toc? 4$$
Ret'ine+ e'(nin,) #$$
Tot'/ one() e*it> 1%5$$
Tot'/ /i';i/itie) 'n+ one() e*it> !"%$$
C')& F/o) 0(o Oe('tin, Actiitie)
Net Incoe
A+*)tent)7
De(eci'tion Dec(e')e in 'cco*nt) (ecei';/e
Inc(e')e in inento(ie)
Dec(e')e in 'cco*nt '>';/e
Net C')& (oi+e+ ;> oe('tin, 'ctiite)
C')& F/o) 0(o Ine)tin, Acititie)
Inc(e')e in /'nt 'n+ e*ient
C')& F/o) 0(o Fin'ncin, Acititie)
Inc(e')e in note) '>';/e Dii+en)
Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
Net Dec(e')e in c')&
C')&% 'n*'(>1% "$1$
C')&% Dece;e( 31% "$1$
3-
INTERPRETING FINANCIAL STATEMENTS AND MEASURING CASH FLO
DATA
B'/'nce S&eet7 "$$4
C')& !1%$$$
M'(?et';/e Sec*(itie) %$$$
Recei';/e)
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P(e'i+ e2en)e) 1%"$$
Tot'/ c*((ent '))et) 11%"$$
G(o)) /'nt 'n+ e*ient 31%$$$
Le))7 'cc**/'te+ +e(eci'tion 93$%$$$:
Tot'/ '))et) !';/e 1%$$$
Tot'/ c*((ent /i';i/itie) 4%$$$
Lon,-te( +e;t 1$%$$$
Coon )toc? 15"%"$$
Tot'/ /i';i/itie) 'n+ e*it> !
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De(eci'tion 3$%$$$
Inc(e')e in '(?et';/e )ec*(itie) 9"$$:
Dec(e')e in 'cco*nt) (ecei';/e 4%$$$
P(e'i+ E2en)e) 1$$
Inc(e')e in inento(ie) 9/e)) AP: 9"';/e !4%$$$
Acc(*'/) 9!1%$$$:
Note) '>';/e 9!"%$$$:
Tot'/ c*((ent /i';i/itie) !%$$$
Lon,-te( +e;t 9!1$%$$$:
Coon )toc? !11%1$$
Tot'/ /i';i/itie) 'n+ e*it> !5%1$$
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3-'#
MEASURING CASH FLOWS
DATA
A;('&') M'n*0'ct*(in, Co'n> B'/'nce S&eet
At 1"31"$$4 'n+ 1"31"$1$
A))et)7 "$$4
C')& !#4%$$$
Acco*nt) Recei';/e 11"%$$$
P(e'i+ e2en)e) 1$%$$$
Tot'/ c*((ent '))et) "5%$$$
G(o)) /'nt 'n+ e*ient "3#%$$$
Acc**/'te+ De(eci'tion 9 Incoe St'teent
Fo( t&e e'( En+e+ 1"31"$1$
S'/e) 9'// c(e+it:
Le))7 co)t o0 ,oo+) )o/+
G(o)) (o0it)
Le))7 oe('tin, e2en)e)
Gene('/ 'n+ '+ini)t('tie
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Net incoe ''i/';/e to coon )toc?&o/+e()
1. T&e on/> ent(> in t&e 'cc**/'te+ +e(eci'tion 'cco*nt i) 0o( "$1$ +e(eci'tion
". Coon )toc? +ii+en+) 0o( "$1$ ""%$$$
Solution
St'teent o0 C')& F/o)
C')& F/o) 0(o Oe('tin, Actiitie)
Net Incoe "';/e %$$$
Dec(e')e in 'cc(*e+ /i';i/itie) 9%$$$: Net c')& (oi+e+ 0(o oe('tin, 'ctiitie)
C')& F/o) 0(o Ine)tin, Actiitie)
Inc(e')e in ,(o)) /'nt 'n+ e*ient 953%$$$:
Net c')& *)e+ 0o( ine)tin, 'ctiitie)
C')& F/o) 0(o Fin'ncin, Actiitie)
Dec(e')e in o(t,',e '>';/e 95$%$$$:
Inc(e')e in (e0e((e+ )toc? 1"$%$$$
Dii+en+) 9""%$$$:
Net c')& (oi+e+ 0(o 0in'ncin, 'ctiitie)
Net inc(e')e in c')& 11%$$$
C')&% 'n*'(> 1% "$1$ #4%$$$
C')&% Dece;e( 31% "$1$ !1$$%$$$
3-1(#
CORPORATE INCOME TA
S'/e)
Co)t o0 Goo+) So/+ 'n+ Oe('tin, E2en)e)
Oe('tin, Incoe
Ot&e( T'2';/e Incoe 'n+ E2en)e)7
Inte(e)t E2en)e
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Tot'/ T'2';/e Incoe
T'2 Co*t'tion7
T'2 ('te) Incoe
1= ! $%$$$
"= "%$$$
3
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G(o)) P(o0it
Oe('tin, E2en)e)
C')& oe('tin, e2en)e)
De(eci'tion
Oe('tin, Incoe
Ot&e( T'2';/e Incoe 'n+ E2en)e)7
Inte(e)t E2en)e
Tot'/ T'2';/e Incoe
T'2 Co*t'tion
T'2 ('te) Incoe
1= ! $%$$$
"= "%$$$
3
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A))et)7
C')& 8 e*i'/ent) !"3%$1"
Acco*nt) (ecei';/e) #%14
Inento(ie) 1#%"""
Ot&e( c*((ent '))et) 1$%##$
Tot'/ c*((ent '))et) 1"$%33
G(o)) /'nt% (oe(t> 8 e*ient 153%33
Acc**/'te+ +e(eci'tion 4%1
Net /'nt% (oe(t> 8 e*ient 55%45"
Ine)tent) -
Int'n,i;/e) -
Ot&e( '))et) 1"%33
Tot'/ '))et) !3"3%4#
Li';i/itie)7Acco*nt) '>';/e Stoc? 911%4$":
Coon e*it> 11#%
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Se//in,% ,ene('/% 'n+ '+ini)t('tie e2en)e) " ite) 9 8 e*ient 153%33
Acc**/'te+ +e(eci'tion 4%1
Net /'nt% (oe(t> 8 e*ient 55%45"
Ine)tent) -
Int'n,i;/e) -
Ot&e( '))et) 1"%33
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Tot'/ '))et) !3"3%4#
Li';i/itie)7
Acco*nt) '>';/e ! 8 e*ient
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Tot'/ c*((ent /i';i/itie) 5%3"3
Lon, te( note) 33%3#<
Ot&e( /on,-te( /i';i/itie) 55%"5$
Tot'/ Li';i/itie) 1#%455
Coon )toc? 4 !1ot'
G(o)) (o0it))'/e) "3.#=
Oe('tin, (o0it))'/e) #.=
Net Incoe)'/e) .=
C:
T&i) *e)tion +oe) not &'e ' n*e(ic'/ )o/*tion
D:
T&i) *e)tion +oe) not &'e ' n*e(ic'/ )o/*tion
F:
T&i) *e)tion +oe) not &'e ' n*e(ic'/ )o/*tion
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MENTS
%$$
#$
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!1%$
4%$$
%$$
3"%$
1""%$$$
3
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1"
9":
93$:
"
!1
9!3:
!"$
9!1:
!
9!1:
"$
!
/*) t&e
o0 !3.
-
%$$$
""%$$$
33
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"45%$$$
44%3$$
$%$$
"3%$$$
1
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"#4%$$$
""%4$$
1%4$$
!1%1"3%#$$
!"3%4$$
$.4=
1$$.$=
1.#=
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$.4=
".5=
"3.
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9!:
!"5
!
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!1%
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.#=
.#=
11.=
"3.1=
3
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1%1$$ 9!1$$:
13#%3$$ !"3%1$$
33$%$$$ !1
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!
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"$1$
!1$$%$$$
5$%$$$
1$$%$$$
1$%$$$
"#$%$$$
311%$$$
9%$$$:
!"%$$$
"$1$
!4$%$$$
3%$$$
13%$$$
$
1"$%$$$
"$%$$$
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"
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!$$%$$$
T'2e)
! 5%$$
%"$
1
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! 1%$$$%$$$
9
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!3$%3# !5%35< !"%4 !1
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4.= "%#$< 1".3=
.5= 1%""1 5.3=
#.= 9ot'
$# "$$4
5.1= !3$%3# 1$.3=
"1.1= 5%1#1 14.3=
.= 1
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1$$.$= !"4%#5 1$$.$=
1
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$.= 5%533 #3."=
"".
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C&'n,e
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9!1"%#4$:
9!1%4
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CHAPTER 3 PROBLEMS
UNDERSTANDING FINANCIAL STATEMENTS
AND CASH FLOW
3-1.WORKING WITH INCOME STATEMENT
DATA
Net incoe !"#$%$$$
S&'(e) o*t)t'n+in, #$%$$$
Solution
E'(nin,) e( )&'(e
3-".WORKING WITH INCOME STATEMENT
DATA
S'/e) !"%$$$
Co)t o0 ,oo+) )o/+ "$$$$$
Gene('/ 'n+ '+ini)t('tie e2en)e) "$$$
De(eci'tion e2en)e) #%$$$
nte(e)t e2en)e 1"%$$$
ncoe t'2e) 45%"$$
Solution
ncoe St'teent 'n+ Coon-Si6e+ Incoe St'teent7
S'/e)
Co)t o0 Goo+) )o/+
G(o)) P(o0it)
Gene('/ 8 A+in e2en)e)
De(eci'tion e2en)e
Tot'/ oe('tin, e2en)e
Oe('tin, incoe 9EBIT:
nte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
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DATA
C')& $%$$$
Acco*nt (ecei';/e) ';/e
Acco*nt) '>';/e
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
Tot'/ Li';i/itie)
Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>Tot'/ /i';i/itie) 'n+ e*it>
Net Wo(?in, C'it'/
De;t R'tio
3-
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DATA
C')& 3$%$$$
Acco*nt (ecei';/e) 3%#$$
Acco*nt) '>';/e "%$$
S&o(t-te( note) '>';/e 11%$$$
nento(ie) %$$$
G(o)) 0i2e+ '))et) 1%$1%$$$
Acc**/'te+ +e(eci'tion #%$$$
Lon,-te( +e;t "1$%$$$
Coon )toc?
3-.
REIEW OF FINANCIAL STATEMENTS
DATA
nento(> %$$
Gene('/ 'n+ '+in. E2en)e) #$
Coon Stoc?
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C')& 1%$
Oe('tin, e2en)e) 1%3$
Note) '>';/e $$
nte(e)t e2en)e 4$$
De(eci'tion e2en)e $$
Net S'/e) 1"%#$$
Acco*nt) (ecei';/e 4%$$
Acco*nt) '>';/e
Tot'/ c*((ent '))et)
B*i/+in,) 'n+ e*ient
Acc**/'te+ De(eci'tion Net ;*i/+in,) 'n+ e*ient
Tot'/ '))et)
Acco*nt) '>';/e
Note) '>';/e
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
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Tot'/ Li';i/itie)
Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>
Tot'/ /i';i/itie) 'n+ e*it>
3-.
REIEW OF FINANCIAL STATEMENTS
DATA
De(eci'tion e2en)e !%$$$
C')& ""%$$$
Lon,-Te( De;t 33';/e 1$"%$$$
Gene('/ 'n+ '+in. E2en)e) 54%$$$
B*i/+in,) 'n+ E*ient #4%$$$
Note) '>';/e 5%$$$
Acco*nt) (ecei';/e 13%$$$
nte(e)t e2en)e 44%3$$
T'2e) $%$$
Acc**/'te+ De(eci'tion "3%$$$P(e'i+ e2en)e) 1';/e 3%$$$
Ret'ine+ e'(nin,) ""%4$$
Solution
ncoe St'teent7
S'/e)
Co)t o0 Goo+) )o/+
G(o)) P(o0it)
Gene('/ 8 A+in e2en)e)De(eci'tion e2en)e
Tot'/ oe('tin, e2en)e
Oe('tin, incoe 9EBIT:
nte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
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B'/'nce S&eet7
C')&
Acco*nt) (ecei';/e
nento(>
P(e'i+ e2en)e)
Tot'/ c*((ent '))et)
G(o)) B*i/+in,) 'n+ e*ient
Acc**/'te+ De(eci'tion
Net 0i2e+ '))et)
Tot'/ '))et)
Note) '>';/e
Acco*nt) '>';/e
T'2e) '>';/e
Acc(*e+ e2en)e)
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
Tot'/ Li';i/itie)
Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>
Tot'/ /i';i/itie) 'n+ e*it>
A:
Net Wo(?in, C'it'/ De;t R'tio
B:
Coon-Si6e+ Incoe St'teent7
S'/e)
Co)t o0 Goo+) )o/+
G(o)) P(o0it)
Gene('/ 8 A+in e2en)e)
De(eci'tion e2en)e
Tot'/ oe('tin, e2en)eOe('tin, incoe 9EBIT:
nte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
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C')&
Acco*nt) (ecei';/e
nento(>
P(e'i+ e2en)e)
Tot'/ c*((ent '))et)
G(o)) B*i/+in,) 'n+ e*ient
Acc**/'te+ De(eci'tion
Net 0i2e+ '))et)
Tot'/ '))et)
Note) '>';/e
Acco*nt) '>';/e
T'2e) '>';/e
Acc(*e+ e2en)e)
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
Tot'/ Li';i/itie)
Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>
Tot'/ /i';i/itie) 'n+ e*it>
3-5.
WORKING WITH INCOME STATEMENT AND BALANCE SHEET
DATAS'/e) !$%$$$
Acc**/'te+ +e(eci'tion 14$%$$$
C')& @
Co)t o0 ,oo+) )o/+ 3"$%$$$
Acco*nt (ecei';/e) 53%$$$
De(eci'tion e2en)e) 3#%$$$
Acco*nt) '>';/e %$$$
nte(e)t e2en)e "%$$$
S&o(t-te( note) '>';/e "4%$$$
ncoe t'2e) 4%#$nento(ie)
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Solution
ncoe St'teent7
S'/e)
Co)t o0 Goo+) )o/+
G(o)) P(o0it)
Gene('/ 8 A+in e2en)e)
De(eci'tion e2en)e
Tot'/ oe('tin, e2en)e
Oe('tin, incoe 9EBIT:
nte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
Tot'/ c*((ent '))et)
G(o)) B*i/+in,) 'n+ e*ientAcc**/'te+ De(eci'tion
Net 0i2e+ '))et)
Ot&e( '))et)
Tot'/ '))et)
Acco*nt) '>';/e
Note) '>';/e
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
Tot'/ Li';i/itie)Coon Stoc?
Ret'ine+ e'(nin,)
Tot'/ e*it>
Tot'/ /i';i/itie) 'n+ e*it>
Net Wo(?in, C'it'/
De;t R'tio
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3-
COMPUTING CASH FLOWS
DATA
nc(e')e in 'cco*nt) (ecei';/e "
nc(e')e in inento(ie) 3$
Oe('tin, Incoe 5
nte(e)t E2en)e "
nc(e')e in 'cco*nt) '>';/e "
Dii+en+) 1
nc(e')e in coon )toc? "$
nc(e')e in net 0i2e+ '))et) "3
De(eci'tion E2en)e 1"
ncoe t'2e) 15
Be,innin, c')& "$
Solution
C')& F/o) 0(o Oe('tin, Actiitie)
Net Incoe
A+*)tent)7
De(eci'tion
Inc(e')e in 'cco*nt) (ecei';/e
Inc(e')e in inento(ie)
Inc(e')e in 'cco*nt '>';/e
Net C')& (oi+e+ ;> oe('tin, 'cti'te)
C')& F/o) 0(o Ine)tin, Actiitie)
Inc(e')e in ,(o)) 0i2e+ '))et)
C')& F/o) 0(o Fin'ncin, Actiitie)
Inc(e')e in coon )toc?
Dii+en+)
Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
Dec(e')e in C')&
Be,innin, C')&
En+in, c')&
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3-4.
STATEMENT OF CASH FLOWS
No co*t'tion) (e*i(e+.
3-1(#
COMPUTING CASH FLOWS
DATA
Dii+en+) !"
nc(e')e in coon )toc? "5
nc(e')e in 'cco*nt) (ecei';/e
nc(e')e in inento(ie)
Oe('tin, incoe "1
nc(e')e in 'cco*nt) '>';/e
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Dii+en+)
Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
nc(e')e in c')&
Be,innin, c')&
En+in, c')&
Net Incoe oe('tin, incoe J inte(e)t e2en)e J incoe t'2e)
P(o;/e 3-11 +oe) not &'e ' n*e(ic'/ )o/*tion.
3-12#
MEASURING CASH FLOWS
DATA
A;('&') M'n*0'ct*(in, Co'n> B'/'nce S&eet
At 1"31"$11 'n+ 1"31"$1"
A))et)7 "$11 "$1"
C')& !#4%$$$ !1$$%$$$
Acco*nt) Recei';/e 11"%$$$ 1$$%$$$
P(e'i+ e2en)e) 1$%$$$ 1$%$$$
Tot'/ c*((ent '))et) "5%$$$ "#$%$$$
G(o)) /'nt 'n+ e*ient "3#%$$$ 311%$$$
Acc**/'te+ De(eci'tion 9
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Gene('/ 'n+ '+ini)t('tie
Inc(e')e in 'cco*nt) '>';/e
Dec(e')e in 'cc(*e+ /i';i/itie)
Net c')& (oi+e+ 0(o oe('tin, 'ctiitie)
C')& F/o) 0(o Ine)tin, Actiitie)
Inc(e')e in ,(o)) /'nt 'n+ e*ient
Net c')& *)e+ 0o( ine)tin, 'ctiitie)
C')& F/o) 0(o Fin'ncin, Actiitie)
Dec(e')e in o(t,',e '>';/e
Inc(e')e in (e0e((e+ )toc?
P(e0e((e+ )toc? +ii+en+)
Coon )toc? +ii+en+)Net c')& (oi+e+ 0(o 0in'ncin, 'ctiitie)
Net inc(e')e in c')&
C')&% 'n*'(> 1% "$1"
C')&% Dece;e( 31% "$1"
3-13.
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WORKING WITH STATEMENT OF CASH FLOWS
DATA
nc(e')e in inento(ie) !5%$$$
Oe('tin, incoe "14%$$$
Dii+en+) "4%$$$
nc(e')e in 'cco*nt) '>';/e) ';/e 1%$$$
nc(e')e in ,(o)) 0i2e+ '))et) ';/eNet C')& (oi+e+ ;> oe('tin, 'ctiitie)
C')& F/o) 0(o Ine)tin, Actiitie)
Inc(e')e in /'nt 'n+ e*ient
C')& F/o) 0(o Fin'ncin, Actiitie)
Inc(e')e in note) '>';/e
Inc(e')e in /on,-te( +e;t
I))*e+ ne coon )toc?
Dii+en+)Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
Net Dec(e')e in c')&
Be,innin, c')&
En+in, c')&
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3-14#
NTERPRETING FINANCIAL STATEMENTS AND MEASURING CASH FLOWS
DATA
A))et)7 "$11 "$1"
C')& !"$$ !1$
Acco*nt) Recei';/e 1%$$ 1%5$$
Tot'/ /i';i/itie) 'n+ one() e*it> !"%
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Coon-Si6e+ Incoe St'teent7 "$1"
S'/e)
Co)t o0 ,oo+) )o/+
G(o)) (o0it
Oe('tin, e2en)e)
De(eci'tion
Oe('tin, incoe
nte(e)t e2en)e
E'(nin,) ;e0o(e t'2e)
T'2e) 9
C*((ent '))et)
P/'nt 'n+ e*ient
Le))7 'cc**/'te+ +e(eci'tion
Net /'nt 'n+ e*ient
Tot'/ '))et)
Li';i/itie) 'n+ E*it>7 "$1"
Acco*nt) '>';/e
Note) '>';/e--c*((ent 94=:C*((ent /i';i/itie)
Bon+)
One() e*it>
Coon )toc?
Ret'ine+ e'(nin,)
Tot'/ one() e*it>
Tot'/ /i';i/itie) 'n+ one() e*it>
C')& F/o) 0(o Oe('tin, Actiitie)
Net IncoeA+*)tent)7
De(eci'tion
Dec(e')e in 'cco*nt) (ecei';/e
Inc(e')e in inento(ie)
Dec(e')e in 'cco*nt '>';/e
Net C')& (oi+e+ ;> oe('tin, 'cti'te)
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C')& F/o) 0(o Ine)tin, Actiitie)
Inc(e')e in /'nt 'n+ e*ient
C')& F/o) 0(o Fin'ncin, Actiitie)
Inc(e')e in note) '>';/e
Dii+en+)
Net c')& (oi+e+ ;> 0in'ncin, 'ctiitie)
Net Dec(e')e in c')&
C')&% 'n*'(>1% "$1"
C')&% Dece;e( 31% "$1"
3-1$#
NTERPRETING FINANCIAL STATEMENTS AND MEASURING CASH FLOWS
DATA
B'/'nce S&eet7 "$11 "$1"
C')& !1%$$$ !1 1%$$$ #';/e 1%$$$ 13%$$$
Tot'/ c*((ent /i';i/itie) 4%$$$ 5%$$$
Lon,-te( +e;t 1$%$$$ 1$%$$$
Coon )toc? 15"%"$$ 1#3%3$$
Tot'/ /i';i/itie) 'n+ e*it> !
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Tot'/ Oe('tin, 'n+ inte(e)t e2en)e) 5$%$$$
E'(nin,) ;e0o(e t'2e) 5$%$$$
Le))7 T'2e) "5%1$$
Net incoe ''i/';/e to coon )toc?&o/+e()
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M'(?et';/e Sec*(itie)
Recei';/e)
nento(>
P(e'i+ e2en)e)
Tot'/ c*((ent '))et)
Net 0i2e+ '))et)
Tot'/ '))et)
Acco*nt) '>';/e
Acc(*'/)
Note) '>';/e
Tot'/ c*((ent /i';i/itie)
Lon,-te( +e;t
Coon )toc?
Tot'/ /i';i/itie) 'n+ e*it>
3-1)#
CORPORATE INCOME TA
S'/e) ! 3%$$$%$$$
Co)t o0 Goo+) So/+ 'n+ Oe('tin, E2en)e) 9"%1$$%$$$:
Oe('tin, Incoe
Ot&e( T'2';/e Incoe 'n+ E2en)e)7
Inte(e)t E2en)e 9
3-1%#
CORPORATE INCOME TA
S'/e) ! %$$$%$$$
Co)t o0 Goo+) So/+ 9"%$$$%$$$:
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G(o)) P(o0it)
Oe('tin, E2en)e) 91%$$$%$$$:
Oe('tin, Incoe
Ot&e( T'2';/e Incoe 'n+ E2en)e)7
Inte(e)t Incoe ! "$%$$$
Inte(e)t E2en)e 91$$%$$$:
Tot'/ T'2';/e Incoe
T'2 Co*t'tion
T'2 ('te) Incoe T'2e)
= )*(t'2 0o( incoe ;eteen !1$$%$$$ 'n+ !33%$$$
=T'2 Li';i/it>
3-1#.
CORPORATE INCOME TA
S'/e) ! 3%$$$%$$$
Co)t o0 Goo+) So/+ 9"%$$$%$$$:
G(o)) P(o0it
Oe('tin, E2en)e)C')& oe('tin, e2en)e) 9
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MINI CASE
'. Co'(i)on o0 (o0it '(,in) 0(o "$$4 to "$1$
Tie W'(ne(
"$$4 "$1$
S'/e) !"%3## !"%###
Co)t o0 ,oo+) )o/+ 1
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G(o)) (o0it '(,in
Oe('tin, (o0it '(,in
Net (o0it '(,in
;. Co'(i)on o0 (o0it '(,in) ;eteen Tie W'(ne( 'n+ W'/t Di)ne>
Tie W'(ne(
"$$4 "$1$
G(o)) (o0it '(,in
Oe('tin, (o0it '(,in
Net (o0it '(,in
c. Co'(i)on o0 ;'/'nce )&eet) 'n+ '))et-to-)'/e) (e/'tion)&i)
Tie W'(ne(
"$$4 "$1$S'/e) ! "%3## ! "%###
Tot'/ '))et) ! %$4 ! %"<
S'/e)-to-'))et)
APPENDI SOLUTIONS
3-A1
COMPUTING FREE ANDE FINANCING CASH FLOWS
DATA
nc(e')e in inento(ie) ! 3"
Oe('tin, incoe "1
Dii+en+) "
nc(e')e in ACCOUNTS PAABLE
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C&'n,e in net oe('tin, o(?in, c'it'/
nc(e')e in inento(ie)
nc(e')e in 'cco*nt) (ecei';/e
nc(e')e in ot&e( c*((ent '))et)
nc(e')e in 'cco*nt) '>';/e
C&'n,e in net oe('tin, o(?in, c'it'/
nc(e')e in 0i2e+ '))et)
F(ee c')& 0/o)
Fin'ncin, c')& 0/o)
nte(e)t e2en)e
Dii+en+)
nc(e')e in coon )toc?
Fin'ncin, c')& 0/o)
3-A"
NTERPRETING CASH FLOWS
No *'ntit'tie )o/*tion
3-A3
COMPUTING FREE AND FINANCING CASH FLOWS
DATA
"$11 "$1"
C')& !#4%$$$ !1$$%$$$Acco*nt) (ecei';/e ! !11"%$$$ !1$$%$$$
P(e'i+ e2en)e) !1$%$$$ !1$%$$$
Tot'/ c*((ent '))et) !"5%$$$ !"#$%$$$
G(o)) 0i2e+ '))et) !"3#%$$$ !311%$$$
Acc**/'te+ +e(eci'tion 9!';/e !#%$$$ !4$%$$$Acc(*e+ /i';i/itie) !#%$$$ !3%$$$
Tot'/ c*((ent /i';i/itie) !13%$$$ !13%$$$
Mo(t,',e '>';/e !5$%$$$ !$
Tot'/ +e;t !""3%$$$ !13%$$$
P(e0e((e+ )toc? !$ !1"$%$$$
Coon )toc? !"$%$$$ !"$%$$$
Ret'ine+ e'(nin,) !
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Tot'/ e*it> !"$%$$$ !35"%$$$
Tot'/ +e;t 'n+ e*it> !
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COMPUTING FREE CASH FLOWS AND FREE CASH FLOWS ANALSIS
DATA
A))et)7 "$11 "$1"
C')& !"$$ !1$
Acco*nt) Recei';/e 1%$$ 1%5$$
Tot'/ /i';i/itie) 'n+ one() e*it> !"%
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Step 2: Calculate the change in the net working capital
1"31"$11 1"31"$1"
C*((ent '))et)
C*((ent /i';i/itie)
Net o(?in, c'it'/
Step 3: Compute the change in fixed and other assets
C&'n,e in ,(o)) 0i2e+ '))et)
C&'n,e in ot&e( '))et)
C&'n,e in ,(o)) 0i2e+ 'n+ ot&e( '))et)
Step 4: rapping it up
A0te(-t'2 c')& 0/o) 0(o oe('tion)
Le)) ine)tent)7
ne)tent in net o(?in, c'it'/
ne)tent in ,(o)) 0i2e+ 'n+ ot&e( '))et)
F(ee c')& 0/o)
Cash flows distri!uted to in"estors
nte(e)t 'i+ to /en+e()
nc(e')e in note) '>';/e
Coon )toc? +ii+en+)nc(e')e in coon )toc?
Fin'ncin, c')& 0/o)
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c&'n,e
9!1%$$$:
!"$$
9!4%$$$:
!33%$$$
9!1$$:
!"3%1$$
!1
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"$$4 "$1$
1$$.$= 1$$.$=
.1= .4=
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W'/t Di)ne>
"$$4 "$1$
W'/t Di)ne>
"$$4 "$1$! 3%1
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c&'n,e
!11%$$$!%$$$
9!1"%$$$:
!$
!%$$$
!53%$$$
9!"%$$$:
!
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!1""%$$$
!"%$$$
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C&'n,e)