Financial Management Theory Note Chapter 2 - Basic Financial Statement, sources and uses of cash

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Chapter 2
Basic Financial Statements	Statement of profit or loss The statement to analyze the company business profit realization in a certain period. Information inside will Include revenue earned, expenses and profit earn, operating income, net income, income tax, cost of goods sold……. Statement of financial position Include assets, liabilities, stockholder’s equity. Cash flow statement Include cash receive and spent over specific period, can be monthly, seasonally, or yearly. Sources can be dividing into operating activities, investing activities and financing activities. Statement of shareholder’s equity Include common and preferred stock account, earning account of change to shareholders equity. Content inside: Net profit Gain and loss. Invest capital. Distributes profit. ……
Pro and Cons of financial statement	Advantages: Access the financial condition of the firm. Financial forecasting and planning Monitor and control operation. Disadvantages: Information is incomplete. Ignored qualitative information. It mainly focusses on historical information.
Simple Formula	Profit =Revenue (or sales) – expenses Earnings per share =net income / number of shares Gross profit = (net sales-COGS) / net sales Operating margin =operating earnings / revenue Net profit margin =net profits / sales Net income =Revenues-(COGS-other expenses-interest expense-income tax) Average tax rate =total tax liability / total taxable income Stockholder’s equity =par value of common stock + paid in capital + retained earnings =total assets-total liabilities Net working capital =current assets-current liabilities Quality of earning. =operations cash flow / net income  Capital acquisitions ratio. =operation cash flow/cash pay for capital expenditures
Marginal and average tax rate	Marginal tax rate Total tax rate based on taxable income. Average tax rate Total taxes paid divide by taxable income
Sources and uses of cash	Sources of cash Decrease in asset account. Increase in a liability account. Increase in owner equity account. Uses of cash. Increase in asset account. Decrease in liability account. Decrease in owner equity account.

 

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