professor dr. rainer stachuletz corporate finance
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Financial Statements And Cash Flow Analysis. Professor Dr. Rainer Stachuletz Corporate Finance. Four Key Financial Statements. Balance sheet. Income statement. Retained earnings. Cash flow Statemt. Financial Managers and analysts use financial statements to conduct: Cash Flow Analysis - PowerPoint PPT PresentationTRANSCRIPT
Financial Statements And Cash Flow Analysis
Professor Dr. Rainer Stachuletz
Corporate Finance
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
2
Four Key Financial Statements
Balancesheet
Income statement
Retainedearnings
Cash flowStatemt.
Financial Managers and analystsuse financial statements to conduct:
- Cash Flow Analysis- Performance (Ratio) Analysis
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
3
Accounting Profit vs. Cash Flow
What are key measures of cash flow?
Accounting Profit based on accrual
accounting—focus on past periods
Finance emphasizes the importance of timing
“You can’t deposit net income, only cash”
Timing of cash flow matters.
Accrual accounting may obscure timing.
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
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Sources and Uses of Corporate Cash
Sources
• Decrease in any asset
• Increase in any liability
• Net profits after taxes
• Depreciation and other non-cash charges
• Sale of stock
Uses
• Increase in any asset• Decrease in any
liability• Net loss• Dividends paid• Stock repurchase or
retirement
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
5
Key Measures of Cash Flow
5
Cash Flow f. Operations
• Total cash generated
Operating Cash Flow
• Cash flow before repaying lenders
Free Cash Flow
• Cash flow that firm could distribute to investors.
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
6
• 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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
7
Financial Ratios: Trends and Benchmarking
Benchmarking: comparison of a company’s ratio values to industry competitors’ ratios
Firms’ financial ratios compared at the same point in time
Trend analysis - performance evaluation over time
Developing trends can be seen using multi-year comparisons.
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
8
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
9
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
10
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
11
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-
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
12
Debt Ratios (Continued)
interest
taxesandinterest before earnings = earnedinterest Times
57.39 = earnedinterest Times Staples (2004)
Office Depot (2004)
12.9 = earnedinterest Times
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
13
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
14
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
15
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
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Market Ratios
shareper earnings
stockcommon of shareper pricemarket = ratio (P/E) ingsPrice/earn
goutstandinstock common of shares ofnumber
equitystock common = shareper Book value
04.28 = ratio (P/E) ingsPrice/earn
05.6$ = shareper Book value Staples (2004)
Office Depot (2004)
87.17 = ratio (P/E) ingsPrice/earn
40.5$ = shareper Book value
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
17
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
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
18
Case:Staples
Ltd.
Financial Statements andCash Flow Analysis
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
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Staples Balance Sheet($ Thousands)
Current assets Jan 31, 2004 Feb 1, 2003
Cash & Equivalents $457,465 $495,889 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 $5,721,388
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
20
Staples Liabilities & Stockholders’ Equity ($
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 $5,721,388
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
21
Staples Income Statement ($ 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 $446,100
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
22 559,732(561,099)2,209,30281,0021,933,379Balances January 31, 2004
------------(367)Other
---(4,315)---------Purchase of treasury stock
490,211---490,211------Net income for year
---28------97Reissuance of treasury stock
69,521------69,521---Translation adjustments
------------18,389Issues of restricted stock
------------16,170Sale of CS under ESOP
------------9,136CS to employee saving plan
------------30,613Tax benefit for option exercise
------------121,553CS issues for option exercise
------------252,972Equity offering
484,710(556,812)1,719,09111,4811,485,132Balances February 1, 2003
Income
Treasury stock
Retained earnings
Cumul. Translat
adjustmtCommon
stock
Staples Statement Of Retained Earnings ($ Thousands)
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
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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) ($1,536,401)
Prof. Dr. Rainer StachuletzCorporate FinanceBerlin School of Economics
24
Staples Statement Of Cash Flows ($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