Statement of Cash Flows Year Ending 12/31/06 Exhibit A (000) 2004 2005 2006 net income $8,246 $11,205 $15,255 depreciation expense 6,129 7,438 9,383 change in accounts receivable (2,402) (6,619) (9,888) change in inventories (1,861) (4,202) (8,225) change in accounts payable 898 1,270 1,500 change in other 880 900 700 cash flow from operations 11,889 9,992 8,725 investing activities capital spending (13,219) (20,522) (28,835) financing activities sale of bonds 1,830 13,030 21,610 change in cash 500 2,500 1,500 beginning cash balance 1,900 2,400 4,900 ending cash balance 2,400 4,900 6,400 Income Statement Year Ending 12/31/06 (000) 2004 2005 2006 Sales $95,000 $119,000 $152,000 Cost of goods sold 57,000 70,210 88,160 Gross profit 38,000 48,790 63,840 Selling expense 14,810 18,000 22,100 General expense 7,040 8,775 11,340 Operating expenses 21,850 26,775 33,440 Operating income 16,150 22,015 30,400 Interest expense 3,464 4,777 6,931 Pre-tax income 12,686 17,238 23,469 Tax expense 4,440 6,033 8,214 Net income 8,246 11,205 15,255 Profit Plan- Pessimistic Scenario (000) Exhibit B Statement of Cash Flows 2007 2008 2009 net income $13,600 $11,500 $10,900 depreciation expense 9,400 9,400 9,400 change in accounts receivable - 3,000 3,000 change in inventories - 2,000 1,700 change in accounts payable - (1,500) (500) change in other - (400) (100) cash flow from operations 23,000 24,000 24,400 investing activities capital spending (9,400) (9,400) (9,400) financing activities payment on bonds (13,500) (14,500) (14,900) change in cash 9,200 15,600 12,800 beginning cash balance 9,790 18,990 34,590 ending cash balance 18,990 34,590 47,390 _______________________________________________________________________ Other Key Data Sales $144,400 137,180 133,751 Operating income 28,158 26,064 24,744 QUESTIONS FOR STUDENTS Question One: Calculate ebitda and free cash flow for years 2004-2006 and compare them to cash flow from operations. What are the signs, trends, and what is the information content of each series? Question Two: Calculate ebitda and free cash flow for the pessimistic scenario, 2004-2006, and compare them to cash flow from operations. What are the signs, trends, and what is the information content of each series? Question Three: list the advantages and disadvantages for the use of ebitda, from the perspective of the entire firm, not just the accounting department.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Statement of Cash Flows
Year Ending 12/31/06 Exhibit A
(000)
2004 2005 2006
net income $8,246 $11,205 $15,255
change in accounts receivable (2,402) (6,619) (9,888)
change in inventories (1,861) (4,202) (8,225)
change in accounts payable 898 1,270 1,500
change in other 880 900 700
cash flow from operations 11,889 9,992 8,725
investing activities
capital spending (13,219) (20,522) (28,835)
financing activities
sale of bonds 1,830 13,030 21,610
change in cash 500 2,500 1,500
beginning cash balance 1,900 2,400 4,900
ending cash balance 2,400 4,900 6,400
Income Statement
Year Ending 12/31/06
(000)
2004 2005 2006
Sales $95,000 $119,000 $152,000
Cost of goods sold 57,000 70,210 88,160
Gross profit 38,000 48,790 63,840
Selling expense 14,810 18,000 22,100
General expense 7,040 8,775 11,340
Operating expenses 21,850 26,775 33,440
Operating income 16,150 22,015 30,400
Interest expense 3,464 4,777 6,931
Pre-tax income 12,686 17,238 23,469
Tax expense 4,440 6,033 8,214
Net income 8,246 11,205 15,255
Profit Plan- Pessimistic Scenario
(000) Exhibit B
Statement of Cash Flows
2007 2008 2009
net income $13,600 $11,500 $10,900
depreciation expense 9,400 9,400 9,400
change in accounts receivable - 3,000 3,000
change in inventories - 2,000 1,700
change in accounts payable - (1,500) (500)
change in other - (400) (100)
cash flow from operations 23,000 24,000 24,400
investing activities
capital spending (9,400) (9,400) (9,400)
financing activities
payment on bonds (13,500) (14,500) (14,900)
change in cash 9,200 15,600 12,800
beginning cash balance 9,790 18,990 34,590
ending cash balance 18,990 34,590 47,390
_______________________________________________________________________
Other Key Data
Sales $144,400 137,180 133,751
Operating income 28,158 26,064 24,744
QUESTIONS FOR STUDENTS
Question One: Calculate ebitda and
Question Two: Calculate ebitda and free cash flow for the pessimistic scenario, 2004-2006, and compare them to cash flow from operations. What are the signs, trends, and what is the information content of each series?
Question Three: list the advantages and disadvantages for the use of ebitda, from the perspective of the entire firm, not just the accounting department.
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