1_Three Financial Statements
Think about a fruit stall owner
Three financial statements
Income statement
Cash flow statement
Balance sheet
$$
Income statement
Income statement
| $, millions |
Revenue | 1,000 |
Cost of goods sold | -500 |
Gross profit | 500 |
Operating expenses | -60 |
Selling, general and administrative expenses (SGA) | -50 |
Other operating expenses | -10 |
Operating income | 440 |
Interest expense | -30 |
Pretax income | 410 |
Income taxes | -30 |
Net income | 380 |
Sales or income generated from business
Cost to produce the goods you sell
Profit after deducting cost with making/ selling the goods
Cost of day to day activities (overheads)
Profit from business operations
Profit after all expenses deducted
Net profit after taxes (clean and final)
Cash flow statement
$$
Cash Flow – Operations
Net income from Income Statement
Add back to adjust net income as no cash involved
Not recognized as income yet, cash received
Goods delivered, cash not received
Goods produced, not sold nor received cash
Goods/ services used, not paid
Cash used for purchasing assets
Cash Flow from Operating Activities | $, millions |
| |
Net income | 380 |
| |
Adjustments to reconcile net income generated by operating activities | |
Depreciation & amortization | 50 |
Deferred income | 25 |
| |
Change in operating assets & liabilities | |
Accounts receivable | -16 |
Inventories | -23 |
Accounts payable | 18 |
Other current & non-current assets | -35 |
Other current & non-current liabilities | 29 |
| |
Cash generated from Operating Activities | 428 |
Cash owed but kept in company
Net cash generated (+ inflow, - outflow)
Cash Flow – Investing
Cash Flow from Investing Activities | $, millions |
| |
Purchase of property and equipment | -200 |
Proceeds from disposals of property and equipment | 25 |
Purchase of marketable securities | -75 |
Maturities and sales of marketable securities | 60 |
Purchase of non-marketable investments | -16 |
Maturities and sales of non-marketable securities | 24 |
Acquisitions, net of cash acquired and purchase of intangible assets | -68 |
| |
Cash generated from Investing Activities | -250 |
Cash Flow – Financing
Cash Flow from Financing Activities | $, millions |
| |
Net payments related to stock-based award activities | -100 |
Repurchases of capital stock | -125 |
Proceeds from issuance of debts, net of costs | 105 |
Repayment of debts | -20 |
Proceeds from sales of subsidiary shares | 160 |
| |
Cash generated from Investing Activities | 20 |
Balance sheet
Balance sheet - Assets
Assets that cannot be converted/ sold within 12 months or less
Assets | $, millions | |
| 2018 | 2017 |
Non-current assets | | |
Property, plant & equipment | 120 | 100 |
Intangible assets | 26 | 20 |
Investments | 14 | 15 |
Other assets | 215 | 200 |
Total non-current assets | 375 | 335 |
| | |
Current assets | | |
Cash & cash equivalents | 60 | 50 |
Receivables | 12 | 8 |
Inventories | 75 | 70 |
Other current assets | 5 | 5 |
Total current assets | 152 | 133 |
| | |
Total assets | 527 | 467 |
Buildings, land and machinery
IP – patents, copyrights, trademarks
Investment not intended to be sold in 12 months (e.g bonds, stocks)
Assets not classifiable in above categories (e.g deferred charges)
Cash or fixed deposits in bank
Money owed by customers to company
Raw materials or ready products in stock
Current assets not classifiable in above categories
Assets that can be converted/ sold within 12 months or less
Non-current assets + Current assets
Balance sheet - Liabilities
Liabilities expected to be paid after 12 months
Long-term debt owed (e.g company bonds)
Liabilities not classifiable in above categories (e.g deferred tax liabilities)
Short-term borrowings
Money owed to suppliers by company
Salaries owed to employees
Liabilities not classifiable in above categories (e.g tax/ dividend payables)
Liabilities expected to be paid within 12 months or less
Liabilities | $, millions | |
| 2018 | 2017 |
Non-current liabilities | | |
Long-term debt | 55 | 45 |
Other liabilities | 87 | 90 |
Total non-current liabilities | 142 | 135 |
| | |
Current liabilities | | |
Short-term debt | 27 | 24 |
Payables | 29 | 35 |
Payroll | 16 | 14 |
Other current liabilities | 8 | 12 |
Total current liabilities | 80 | 85 |
| | |
Total liabilities | 222 | 220 |
| | |
Total shareholder's equity | 305 | 247 |
Non-current liabilities + Current liabilities
Equity = Total assets – total liabilities