# Financial Statements Taxes and Cash Flow

Anonymous
account_balance_wallet \$80

### Question Description

Need help in answering all document attached

Attachment preview

Chapter 2: Financial statements, taxes and cash flow

2.1 The balance sheet B/S

1. What is the balance sheet identity?

2. What is liquidity? Why is it important?

3. Explain the difference between book value and market value. Which is more important

to the financial manager? Why?

4. The Klingon Corporation has NFA with a book value of \$700 and an appraised market

value of \$1,000. Net working capital is \$400 on the books, but approximately \$600

would be realized if all current accounts were liquidated. Klingon has \$500 in long-

term debt, both book value and market value. What is the book value of the equity?

What is the market value?

5. Prepare a 2009 balance sheet for Bertinlli Corp. based on the following information:

Cash = \$195,000; patents and copyrights = \$780,000; accounts payable = \$405,000;

accounts receivable = \$137,000; tangible net fixed assets = \$\$2,800,000; inventory =

\$264,000; notes payable = \$160,000; accumulated retained earnings = \$1,934,000;

long-term debt = \$1,195,300.

### Unformatted Attachment Preview

Purchase answer to see full attachment

markjunior209
School: UT Austin

Hello, your assignment is complete. Thank you

Running Head: FINANCIAL STATEMENTS, TAXES AND CASH FLOW

Financial Statements, Taxes and Cash Flow

Student’s name

Course name and number

Instructor’s name

Date submitted

1

FINANCIAL STATEMENTS, TAXES AND CASH FLOW

2

Chapter 2: Financial statements, taxes and cash flow
1
Balance sheet identity is elementary equation which express company’s actual book value. It is
expressed as
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐿𝑖𝑎𝑏𝑙𝑖𝑡𝑖𝑒𝑠 + 𝑜𝑤𝑛𝑒𝑟 ′ 𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
2
Liquidity is defined as the ease and speed at which can be converted to cash. It is important
because it indicates the likelihood of a company to experience financial distress. For instance,
means less financial distress.
3
Book value is the value of a firm based on its financial statements while market value is the
value of the firm based on the stock market. Market value is more important to the financial
manager because it represent the price one has to pay in order to own part of the business
irrespective of its book value.
4

Assets
NWC
NFA
Total

\$400
\$700
\$1,100

Klingon Corporation
Balance sheets
Market value Vs. Book Value
Book
Market
Book
Liabilities and Shareholders’ equity
\$600
LTD \$500
\$500
\$1,000
SE
\$600
\$1,100
\$1,600
Total \$1,100
\$1,600

Market

FINANCIAL STATEMENTS, TAXES AND CASH FLOW

3

5

Assets (\$)
Cash
Account receivable
Inventory
Current assets

195,000
137,000
364,000
696,000

Balance sheet
Owners’ equity and liabilities (\$)
Account payable
405,000
Not-payable
160,000
Current liabilities
565,000
Long-term debt
1,195,300
Total liabilities
1,760,300

Tangible net Fixed
assets
Intangible net Fixed
assets

2,800,000
780,000

Common stock

581, 700

Total assets

4,276,000

Retained earnings
Total Owners’ equity
and liabilities

1,934,000
4,276,000

Common stock = 4,276,000 - 1,760,300 - 1,934,000 = \$ 581, 700
6
It is a basic equation which forms the basis for income statement. It is expressed as
𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑠 – 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒.
7
The basic difference between accounting income and cash flow is the fact that income statement
contains Non-cash Items such as depreciation which does not affect cashflow directly.
8

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
412
=
= 2.06
𝑁𝑜 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 200

FINANCIAL STATEMENTS, TAXES AND CASH FLOW
𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 = \$ 2.06

𝐷𝑖𝑣𝑖𝑑𝑒𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 =

𝑇𝑜𝑡𝑎𝑙 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑
103
=
= 0.515
𝑁𝑜 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒𝑠 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 200

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒 = \$ 0.515
9
Sales
Costs
EBIDT
Dividends
Interest expense
Tax rate

\$ 41,000
\$ 19,500 (-)
\$ 21,500
\$ 1,500
\$ 4,500
35%
\$5,100

𝑅𝑒𝑡𝑎𝑖𝑛𝑒𝑑 𝑒𝑎𝑟𝑛𝑖𝑛𝑔𝑠 = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 – 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
\$5,100 = 𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 − \$ 1,500
Thus
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 = \$ 6,600
EBIDT = 21,500
EBIT = 6600
Therefore
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑒𝑥𝑝𝑒𝑛𝑠𝑒 = 21,500 − 6600 = \$ 14,900

4

FINANCIAL STATEMENTS, TAXES AND CASH FLOW

5

10
Cash flow identity is a basic equation which denotes the company’s’ cash flow. It is expressed as
𝐶𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑓𝑟𝑜𝑚 𝑎𝑠𝑠𝑒𝑡𝑠 = 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑡𝑜 𝑐𝑟𝑒𝑑𝑖𝑡𝑜𝑟𝑠 + 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑡𝑜 𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟𝑠.
11
Operating cash flow is the cash flow resulting from day-day activities of the business i.e.
producing and selling. It is expressed as
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 = 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡𝑠 𝑎𝑛𝑑 𝑡𝑎𝑥𝑒𝑠 + 𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛𝑠 − 𝑇𝑎𝑥𝑒𝑠
12
Interest paid not a ...

flag Report DMCA
Review

Anonymous
Goes above and beyond expectations !

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors