introduction to business economics
Analysis for financial management (Robert C. Higgins)
Summary of the used chapters in the lecture (WM0609LR)
Chapter 1 Interpreting financial statements
Accounting
Information provided by 3 annual reports:
Balance Sheet
Cash-Flow statement
Income statement
Figure 1 Cash flowproduction cycle
(Operating) working capital: movement of cash into inventory
Investment: flow from cash into new fixed assets
Depreciation: the loss in value of fixed assets ⇒ increase in value of merchandise made + needed for growth Solvency: ability to have cash to buy fixed assets and inventory (outflow cash)
Financial statements: Balance sheet
The balance sheet
Equity= assets - liabilities current assets
current liabilities cash !
inventories
!
acc receivable
!
equipment
!
plant
accounts payable !
!
fixed assets
long-term liabilities long-term debt
!
total shareholders equity stock !
retained earnings !
total assets
x
total liabilities + equity
x
Figure 2 example of a balance sheet
Financial snapshot: 1 moment in time
Assets against the claims Liability: obligation to deliver something of value in the future
Equity: difference between assets and liabilities
Liquidity: speed at which an item can be turned into cash Accounting: income statement
Assets and liabilities are listed in order of decreasing liquidity
‐ Current: liquidity 1 year
Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA)
-Depreciation, Amortization
Earnings Before Interest and Taxes (EBIT)
-Interest
Earnings before taxes (EBT)
-Taxes
Net income
-Dividends
Addition to retained earnings
2
Income statement Difference between 2 important balance sheets
‐ Change in owner’s equity in terms of revenues (sales) and expenses (costs) ⇒ net income
(earnings, profits)
‐ Commonly divided in
Summary of the used chapters in the lecture (WM0609LR)
Chapter 1 Interpreting financial statements
Accounting
Information provided by 3 annual reports:
Balance Sheet
Cash-Flow statement
Income statement
Figure 1 Cash flowproduction cycle
(Operating) working capital: movement of cash into inventory
Investment: flow from cash into new fixed assets
Depreciation: the loss in value of fixed assets ⇒ increase in value of merchandise made + needed for growth Solvency: ability to have cash to buy fixed assets and inventory (outflow cash)
Financial statements: Balance sheet
The balance sheet
Equity= assets - liabilities current assets
current liabilities cash !
inventories
!
acc receivable
!
equipment
!
plant
accounts payable !
!
fixed assets
long-term liabilities long-term debt
!
total shareholders equity stock !
retained earnings !
total assets
x
total liabilities + equity
x
Figure 2 example of a balance sheet
Financial snapshot: 1 moment in time
Assets against the claims Liability: obligation to deliver something of value in the future
Equity: difference between assets and liabilities
Liquidity: speed at which an item can be turned into cash Accounting: income statement
Assets and liabilities are listed in order of decreasing liquidity
‐ Current: liquidity 1 year
Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA)
-Depreciation, Amortization
Earnings Before Interest and Taxes (EBIT)
-Interest
Earnings before taxes (EBT)
-Taxes
Net income
-Dividends
Addition to retained earnings
2
Income statement Difference between 2 important balance sheets
‐ Change in owner’s equity in terms of revenues (sales) and expenses (costs) ⇒ net income
(earnings, profits)
‐ Commonly divided in