Financial Statements And Cash Flow Analysis
Professor XXXXXCourse Name / Number
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Financial Statements
Balance Sheet
Income Statement
Managers and Analysts Use Financial Statement to Conduct:- Cash Flow Analysis
- Performance (Ratio) Analysis
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Four Key Financial Statements
1. Balance Sheet2. Income Statement3. Statement Of Retained Earnings4. The Statement Of Cash Flows
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Staples Balance Sheet($ Thousands)
Current assets Jan 31, 2004 Feb 1, 2003 Cash & Equivalents $457,465 $495,889 ST Investments 934,275 100,175 Receivables 410,330 364,419 Inventories 1,465,989 1,555,205 Other current assets 114,598 105,559 Deferred taxes 96,247 96,229 Total current assets $3,478,904 $2,717,476 Fixed assets Property, plant and equipment $1,505,301 $1,447,752 Goodwill 1,202,007 1,207,824 Intangible assets 253,768 267,841 Other assets 63,066 80,495 Total Non-Current Assets $3,024,142 $3,003,912 Total assets $6,503,046 $5,721,388
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Staples Liabilities & Stockholders’ Equity ($ Thousands)
Current liabilities Jan 31, 2004 Feb 1, 2003
Payables and Accrued Expenses $1,933,084 $1,874,655 Short Term and Current Long Term 190,150 327,671 Total current liabilities $2,123,234 $2,175,326 Long term Debt 567,433 732,041 Total long-term liabilities $567,433 $732,041 Other 149,479 155,129
Total liabilities $2,840,146 $3,062,496
Shareholders’ equity Common Stock $316 $299 Retained Earnings 2,209,302 1,719,091 Treasury Stock (561,099) (556,812) Capital Surplus 1,933,379 1,484,833 Other Stockholder Equity 81,002 11,481 Total Stockholder Equity $3,662,900 $2,658,892 Total liabilities & stockholders’ equity $6,503,046 $5,721,388
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Staples Income Statement ($ Thousands)
Jan 31, 2004
Feb 01, 2003
Total Revenue $13,181,222 $11,596,075 Cost of Revenue (9,559,123) (8,652,593) Gross Profit $3,622,099 $2,943,482 Operating/Selling 2,282,092 1,795,428 General/Admin. Expenses 524,094 451,501 Non Recurring 9,639 8,746 Other 7,986 2,135 Operating income $798,288 $682,672 Earnings Before Interest and Taxes $798,288 $682,672 Interest Expense 20,176 20,609 Income Tax Expense 287,901 215,963 Net Income from Continuing Operations
$490,211 $446,100
Net income $490,211 $446,100
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The Sources and Uses of Corporate Cash
• Decrease in any asset
• Increase in any liability
• Net profits after taxes
• Depreciation and other non-cash charges
• Sale of stock
• Increase in any asset
• Decrease in any liability
• Net loss• Dividends paid• Repurchase or
retirement of stock
SourcesSources UsesUses
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Common stock
Cumul. Translat
adjustmtRetained earnings
Treasury stock Income
Balances February 1, 2003 1,485,132 11,481 1,719,091 (556,812) 484,710
Equity offering 252,972 --- --- --- ---
CS issues for option exercise 121,553 --- --- --- ---
Tax benefit for option exercise 30,613 --- --- --- ---
CS to employee saving plan 9,136 --- --- --- ---
Sale of CS under ESOP 16,170 --- --- --- ---
Issues of restricted stock 18,389 --- --- --- ---
Translation adjustments --- 69,521 --- --- 69,521
Reissuance of treasury stock 97 --- --- 28 ---
Net income for year --- --- 490,211 --- 490,211
Purchase of treasury stock --- --- --- (4,315) ---
Other (367) --- --- --- ---
Balances January 31, 2004 1,933,379 81,002 2,209,302 (561,099) 559,732
Staples Statement Of Retained Earnings ($ Thousands)
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Staples Statement Of Cash Flows ($ Thousands)
Cash Flow From Operating Activities
Jan 31,2004
Feb 1,2003
Net income (net profit after tax) $490,211 $446,100
Depreciation 282,811 267,209
Adjustments to Net Income 22,709 35,993
Changes in Account Receivables (4,218) 62,460
Changes in Liabilities 81,123 121,943
Changes in Inventories 80,721 80,721
Changes in Other Operating Activities (34) (3,574)
Cash Flows from Operating Activities $1,019,732 $914,350
Cash Flow from Investment Activities
Capital Expenditures ($280,703) ($1,435,879)
Other Cash Flows from Investing Activities (831,190) (100,175)
Cash Flows From Investing Activities ($1,114,803) ($1,536,401)
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Staples Statement Of Cash Flows ($Thousands)
Cash Flow From Financing Activities
Jan 31, 2004 Feb 1, 2003
Sale (Purchase) of Stock $385,506 $78,421
Net Borrowings (350,235) 635,662
Net Cash Provided by Financing Activities $35,271 $714,038
Effect of exchange rate changes on cash 21,376 9,033
Net (decrease) increase in cash ($38,424) $101,065
Cash and Cash Equivalents, End of Period $457,465 $495,889
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Profit vs. Cash Flow
• Profit based on Accrual Accounting• Finance Emphasizes the Importance of
Timing•“You Can’t Deposit Net Income, Only
Cash”• Timing of Cash Flow Matters
•Accrual Accounting May Obscure Timing
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What are the key measures of cash flow?
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Key Measures of Cash Flow
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Cash Flow from
Operations
Operating Cash Flow
Free Cash Flow
• Total Cash Generated
• Cash Flow Before Repaying Lenders
• Cash Flow Firm Could Distribute to Investors
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• Current Ratio • Quick Ratio• Inventory Turnover Ratio• Average Collection Period• Debt-to-Equity Ratio• Times Interest Earned Ratio• Gross Margin• EPS• P/E Ratio• Market-to-Book Ratio
Types Of Financial Ratios
Activity Ratios
Debt Ratios
Profitability Ratios
Market Ratios
Liquidity Ratios
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Liquidity Ratios
seitilibailcurrent
assetscurrent = ratioCurrent
seitilibailcurrent
inventoryassets-current = ratioQuick
Staples (2004)
64.1 = ratioCurrent 95.0 = ratioQuick
Office Depot (2004)
57.1 = ratioCurrent 98.0 = ratioQuick
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Activity Ratios
inventory
sold goods ofcost = turnoverInventory
assets fixednet
sales = overasset turn Fixed
52.6 = turnoverInventory
36.4 = overasset turn Fixed Staples (2004)
Office Depot (2004)
35.6 = turnoverInventory
81.4 = overasset turn Fixed
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Activity Ratios (Continued)
daypersalesAverage
receivableAccounts = periodcollectionAverage
365
salesAnnual = daypersalesAverage
assets total
sales = overasset turn Total
99.936,112,36$ = daypersalesAverage
days 36.11 = periodcollectionAverage
03.2 = overasset turn Total Staples (2004)
Office Depot (2004)
.9333,859,084$ = daypersalesAverage
days 86.37 = periodcollectionAverage01.2 = overasset turn Total
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Debt Ratios
equityrs'Stockholde
debttermLong = ratioequity Debt-
assets total
seitilibail total = ratioDebt
44.0 = ratioDebt
16.0 = ratioequity Debt- Staples (2004)
Office Depot (2004)
55.0 = ratioDebt
30.0 = ratioequity Debt-
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Debt Ratios (Continued)
interest
taxesandinterest before earnings = earnedinterest Times
57.39 = earnedinterest Times Staples (2004)
Office Depot (2004)
12.9 = earnedinterest Times
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Profitability Ratios
sales
taxes&interestbeforeEarnings = marginprofit Operating
sales
profitsGross = marginprofit Gross
%5.27 = marginprofit Gross
%06.6 = marginprofit Operating Staples (2004)
Office Depot (2004)
%35.31 = marginprofit Gross
%04.4 = marginprofit Operating
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Profitability Ratios (Continued)
sales
incomeNet = marginprofit Net
goutstandinstock common of shares ofnumber
incomeNet = shareper Earnings
%72.3 = marginprofit Net
98.0$ = shareper Earnings Staples (2004)
Office Depot (2004)
%24.2 = marginprofit Net
89.0$ = shareper Earnings
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Profitability Ratios (Continued)
assets Total
incomeNet = assets on totalReturn
equity rs'Stockholde
incomeNet = equitycommon on Return
%54.7 = assets on totalReturn
%4.13 = equitycommon on Return Staples (2004)
Office Depot (2004)
%50.4 = assets on totalReturn
%89.9 = equitycommon on Return
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Market Ratios
stockcommonofsharepervalueBook
stockcommonofsharepervalueMarketratio (M/B)k Market/boo
55.4 ratio (M/B)k Market/boo Staples (2004)
Office Depot (2004)
94.2 ratio (M/B)k Market/boo
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Corporate Taxes
Significant cash outflow
Ordinary income tax
• Progressive tax rate schedule• Average tax rate: tax divided by
the pretax income• More relevant: marginal tax rate
Capital gains tax
• Under existing tax laws, use ordinary income tax rates for capital gain taxes
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Financial Ratios For Cross-Sectional and Trend Analysis
• Cross-Sectional Analysis: Comparing Different Firms’ Financial Ratios at the Same Point in Time– Compared to firms in same industry– Benchmarking - compares a company’s
ratio values to those of competitors that company wishes to emulate
• Trend Analysis - Performance Evaluation Over Time– Developing trends can be seen using
multiyear comparison
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Financial Statements and Financial Ratios
Balance Sheet
Income Statement
Liquidity Ratios
Activity Ratios
Debt Ratios
Profitability Ratios
Market Ratios