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42 Cards in this Set
- Front
- Back
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To calculate net income, we want to prepare ______________ :
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an income statement
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Income Statement
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Net Sales
(COGS) (A&S Expenses) (Dep) = EBIT (Interest Paid) = Income before taxes (taxes %) = NET INCOME |
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To calculate operating cash flow, we want to calculate ______ minus _______, but we don't want to include _______, since it's not a cash outflow, and we don't want to include _______ because it's a financing expense. We do want to include ______, because _____ are paid in cash.
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revenues
costs depreciation interest taxes |
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Operating Cash Flow is very similar to earnings before interest and taxes, we just need to make two adjustments:
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• First, we want to add depreciation back in since it wasn't a cash deduction.
• Secondly, we need to deduct the taxes since these were paid in cash. (A net income less then $0 will have no taxes) |
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Operating cash flow =
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Earnings before interest and taxes + depreciation - taxes
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Operating cash flow could also be calculated from:
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Net income + depreciation + interest)
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cash flow to creditors =
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interest paid - net new borrowing
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Cash flow to shareholders =
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dividends paid - net new equity
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Additions to Net Working Capital (steps)
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Calculate:
1) Cash flow from assets 2) Net Capital Spending 3) OCF - NCS - CFFA |
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Cash flow from assets =
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Cash flow to creditors + Cash flow to shareholders
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Net capital spending =
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Increase in fixed assets + Depreciation
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Additions to net working capital =
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Operating cash flow - Net capital spending - Cash flow from assets
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Current assets =
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[Cash] + [Accounts receivable] + [Inventory]
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Current liabilities =
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[Accounts payable] + [Notes payable]
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Total assets =
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[Current assets] + [Net fixed assets]
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Total liabilities =
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[Current liabilities] + [Long-term debt] + [Shareholders' equity]
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Total assets = total _______ and _____
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Total liabilities and equity
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Income Statement
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Sales
(COGS) = Gross Margin (Other Expenses) = EBDIT (Depreciation) = EBIT (interest) = EBT (taxes %) = Net Income (dividends) = Addition to Retained Earnings |
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Gross margin =
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[Sales] - [Cost of goods sold]
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Earnings before depreciation, interest and taxes =
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[Gross margin] - [Other expenses]
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Earnings before interest and taxes =
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[EBDIT] - [Depreciation]
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Earnings before taxes
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[EBIT] - [Interest]
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Taxes =
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Tax Rate × [EBT]
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Net income = ____ - _____
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[EBT] - [Interest]
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Net Income = _____ + _____
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[Addition to retained earnings] + [Dividends]
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Cash flow from assets =
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[OCF] - [Change in NWC] - [Net capital spending]
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Change in NWC =
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NWC end - NWC beg
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NWC end - NWC beg =
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(CA - CL)end - (CA - CL)beg
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Net capital spending =
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NFAend - NFAbeg + Depreciation
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Cash flow to creditors =
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[Interest] - [Net new LTD]
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Net new LTD =
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LTDend - LTDbeg
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Cash flow to shareholders =
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[Dividends] - [Net new equity]
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Net new equity =
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Common stockend - Common stockbeg
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Common stock + Retained earnings =
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Total shareholders' equity
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Net new equity =
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([Shareholders' equity] - [Retained earnings])end - ([Shareholders' equity] - [Retained earnings])beg
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([Shareholders' equity] - [Retained earnings])end - ([Shareholders' equity] - [Retained earnings])beg
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= [Shareholders' equity]end - [Shareholders' equity]beg + [Retained earnings]beg - [Retained earnings]end
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[Retained earnings]end =
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[Retained earnings]beg + [Addition to RE]2009
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Net new equity =
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[Shareholders' equity]end - [Shareholders' equity]beg + [Retained earnings]beg - ([Retained earnings]beg + [Addition to RE]2009)
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[Shareholders' equity]end - [Shareholders' equity]beg + [Retained earnings]beg - ([Retained earnings]beg + [Addition to RE]2009)
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= [Shareholders' equity]end - [Shareholders' equity]beg - [Addition to RE]2009
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OCF Calculation (steps)
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Calculate:
1) earnings before interest and taxes (EBIT) 2) calculate taxes 3) OCF = EBIT + Depreciation Expense - Taxes |
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earnings before interest and taxes (EBIT) =
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Sales - Costs - Depreciation Expense
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Taxes =
(only apply on EBIT, after interest has been removed) |
(EBIT - Interest) × Tax Rate
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