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  • Intro
    • Financial Statements
      • Key financial statements
        • Balance Sheet
        • Income Statement
        • Statement of Stockholders’ Equity
        • Statement of Cash Flows
      • Performance
  • Lecture
    • Annual Report
      • Balance sheet: provides a snapshot of a firm’s financial position at one point in time
      • Income statement: summarizes a firm’s revenues and expenses over a given period of time.
      • Statement of cash flows: reports the impact of a firm’s activities on cash flows over a given period of time.
      • Statement of stockholders’ equity: shows how much of the firm’s earnings were retained, rather than paid out as dividends.
    • Example: Overview of D’Leon Inc
      • Snack food company that underwent major expansion in 2015
      • So far expansion results have been unsatisfactory
        • Company’s cash position is weak
        • Suppliers are being paid late
        • Bank has threatened to cut off credit
      • Board of directors has ordered that changes must be made

• Cont
  • Cont
    • Cont
      • Fixed assets are up, cash is down. Probably they bought a lot of machinery in the expansion
      • Unsettled accruals are high: people owe them money
      • Net cash is negative
      • They borrowed a lot of money to meet cash requirements
      • It was a bad year for them
    • Did their expansion create additional after-tax income?
      • AT operating income (after tax) = EBIT (Earnings before interest and taxes) * (1 – tax rate)
      • ATOI went down from $114k to -$78k
      • Net income went very negative as well
    • Businesses engage in three types of activities
      • Operating activities
        • Running the business
      • Finance activities
        • Funding the business
      • Investment activities
        • Investing revenues in future business

• Cont
  • Cont
    • Performance measures for evaluating managers
      • Accounting statements are insufficient for evaluating managers because they do not reflect market values
      • Performance measures
        • MVA (market value added) = difference between market value and book value of a firm’s common equity.
        • (Price of stock * number of shares) – book value

• Cont
  • Cont
    • Did they pay suppliers on time?
      • Probably not

• They increased notes payable, creating lots of short-term debt and lots of long-term debt
  • They have a lot of debt now, and their expansion is not showing returns.