1、Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall1Chapter 3: Managing Financial Health and PerformanceObjectivesPurpose of Financial PlanningWorking Capital ManagementCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall23.1 Functions of Financial Statements3.2 Review o

2、f Financial Statement3.3 Market values v. Book Values3.4 Accounting v. Economic Measures of Income3.5 Return on Shareholders v. Return on Book Equity3.6 Analysis Using Financial Ratios3.7 The Financial Planning Process3.8 Constructing a Financial Planning Model3.9 Growth & the Need for External

3、Financing3.10 Working Capital Mgmt.3.11 Liquidity & Cash Mgmt.Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall33.1 Functions of Financial Statements Financial Statements: Provide information to the owners & creditors of a firm about the current status and past performance P

4、rovide a convenient way for owners & creditors to set performance targets & to impose restrictions of the managers of the firm Provide a convenient templates for financial planningCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall4Copyright 2009 Pearson Education, Inc. Publis

5、hing as Prentice Hall5The Balance Sheet Summarizes a firms assets, liabilities, and owners equity at a moment in time Amounts measured at historical values and historical exchange rates Prepared according to GAAP, Generally Accepted Accounting Principles GAAP modified occasionally by the Financial A

6、ccounting Standards Board Exchange-listed companies must comply with Securities and Exchange Commission (SEC) rulesCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall6The Balance Sheet Major Divisions: Assets Current assets (less than a year) Long-term assets (longer than a year Depre

7、ciation Liabilities and Stockholders Equity Liabilities Current Liabilities Long-term debt EquityCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall7Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall8The Income Statement Summarizes the profitability of a company during

8、 a time period Major Divisions: Revenue & cost of goods sold Gross margin General administrative and selling expenses (GS&A) Operating income Debt service Taxable income Corporate Taxes Net incomeCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall9The Income Statement Importan

9、t Reminders: Retained earnings are not added to the cash balance in the balance sheet, but are added to shareholders equity Accounts show historical values, not market values The shareholders equity may be much higher or lower than the market value of the firm The value of the firms land may have ha

10、lved or doubled, but this would not be reported in the balance sheetCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall10GPC Income Statement for Year Ending 2xx1Sales revenues200.0 Cost of goods sold(110.0) *Gross margin90.0 Gen sell, & admin exp(30.0) *Operating income60.0 Inter

11、est expense(21.0) *Taxable income39.0 Income tax(15.6) *Net income23.4 Allocation to divs(10.0) *Chg retained earn13.4 Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall11The Cash-Flow Statement Show the cash that flowed into and from a firm in during a time period Focuses attention

12、on a firms cash situation A firm may be profitable and short of cash Unlike the balance sheet and income statement, cash flow statements are independent of accounting methods The IRS uses accounting income to compute tax, so accounting rules have a second order effect on cash flows through taxesCopy

13、right 2009 Pearson Education, Inc. Publishing as Prentice Hall12GPC Cash Flow Statement, forthe Year ending Dec 31, 2xx0Net income23.4 + Depreciation30.0 - Increase in acc rec(10.0) - Increase in invent(30.0) + Increase in acc rec12.0 *Total cash from operations25.4 - Invest in new ppe(90.0) *Cash f

14、low invest activities(90.0) -Div paid(10.0) + Inc short-term debt94.6 *Cash flow from financing84.6 *Chng cash & mkt securities20.0 Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall13GPC Balance Sheet at Dec 31, 2xx12xx02xx1ChangeAssetsCash & mktble secs100.0 120.0 20.0 Rece

15、ivables50.0 60.0 10.0 Inventories150.0 180.0 30.0 *Current assets300.0 360.0 60.0 Pp&e400.0 490.0 90.0 Acc depreciation(100.0) (130.0) (30.0) *Net pp&e300.0 360.0 60.0 *Total Assets600.0 720.0 120.0 Liabilities & EquityAccounts payable60.0 72.0 12.0 Short-term debt90.0 184.6 94.6 *Curren

16、t liabilities150.0 256.6 106.6 Long-term debt150.0 150.0 - *Total liabilities300.0 406.6 106.6 Paid-in capital200.0 200.0 - Retained earnings100.0 113.4 13.4 *Shareholders equ300.0 313.4 13.4 Liab + Shareholder600.0 720.0 120.0 GPC Income Statement for Year Ending 2xx1Sales revenues200.0 Cost of goo

17、ds sold(110.0) *Gross margin90.0 Gen sell, & admin exp(30.0) *Operating income60.0 Interest expense(21.0) *Taxable income39.0 Income tax(15.6) *Net income23.4 Allocation to divs(10.0) *Chg retained earn13.4 GPC Cash Flow Statement, forthe Year ending Dec 31, 2xx0Net income23.4 + Depreciation30.0

18、 - Increase in acc rec(10.0) - Increase in invent(30.0) + Increase in acc pay12.0 *Total cash from operations25.4 - Invest in new ppe(90.0) *Cash flow invest activities(90.0) -Div paid(10.0) + Inc short-term debt94.6 *Cash flow from financing84.6 *Chng cash & mkt securities20.0 Copyright 2009 Pe

19、arson Education, Inc. Publishing as Prentice Hall14Notes to Financial Statements Explains accounting methods used Details of assets and liabilities Details of equity structure Documents changes in operation Documents off-balance-sheet itemsCopyright 2009 Pearson Education, Inc. Publishing as Prentic

20、e Hall15Reviewing Published Accounts Usual order feel quality of the paper, review pictures read Chairs report review accounts read notes produce estimates Correct order produce estimates read notes compare your numbers & reports read Chairs report check pictures, etc.Copyright 2009 Pearson Educ

21、ation, Inc. Publishing as Prentice Hall16Reasons for this Ordering Form your own unbiased expectations independently of the latest financial report Notes to accounts give the numbers more precise meaning Compare your numbers and the firms to tell you where to focus when reading the chairs report. Lo

22、ok for omissions and conflicts Compare the PR-Departments public image with your (now) informed investors viewCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall173.3 Market Values v. Book Values Not all assets and liabilities are included, and others are understate and/or overstated

23、Intangible assets such as patents may have some value included, but brand loyalty, technological know-how, or a highly trained loyal workforce will not be valued. Goodwill may be included, but soon loses its connection to market value because of accounting depreciation and market fluctuations Some c

24、ontingent liabilities such as law-suits are not routinely disclosed, or only disclosed in the notes Accountants are beginning to mark-to-market the assets of pension fundsCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall183.4 Accounting v. Economic Measures of Income Economists Meas

25、ure of Net Income Net cash flow to shareholders plus change in market value of existing shareholders equity Accountants Measure of Net IncomeRevenue Less Expenses Less Taxes The above two measures would be equal if accountants marked all relevant assets and liabilities to market (they dont!)Copyrigh

26、t 2009 Pearson Education, Inc. Publishing as Prentice Hall19Accounting v. Economic Measures of Income: Example GPCs accounting net income was plus $23,400,000 in 2001 Assume the total market value of the stock fell from $200,000,000 to $187,000,000 from year 2xx0 to 2xx1. We saw earlier that the cas

27、h dividend to shareholders was $10,000,000. The economic income in year 2xx1 was minus $2,800,000 The Accounting and Economic measures of Income may differ substantiallyCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall203.5 Returns to Shareholders v. Return on Book Equity Recall our

28、 definition in Chapter 2 of the holding period return, and compare this with the economic measure of income4 . 1200$8 . 2$ReMillionMillionStartPricecomeEconomicInStartPricendsCashDivideStartPriceEndPriceturn This is the Total Shareholder ReturnCopyright 2009 Pearson Education, Inc. Publishing as Pre

29、ntice Hall21Returns to Shareholders v. Return on Book Equity (Continued) Traditionally, corporate performance has been measured by Return on Equity, ROE%8 .7300$4 .23$MillionMillionrsEquityShareHoldeNetIncomersEquityShareHoldeIncomeAccountingROECopyright 2009 Pearson Education, Inc. Publishing as Pr

30、entice Hall22Returns to Shareholders v. Return on Book Equity (Conclusion) Thus, we see that there is no correspondence between a firms ROE in any year & the total rate of return earned by shareholders on their investment in the companys stockCopyright 2009 Pearson Education, Inc. Publishing as

31、Prentice Hall233.6 Analysis using Financial Ratios Despite the differences in accounting and financial principles, the published accounts of a firm yield clues about its financial condition Five aspects of a firms performance: Profitability Asset turnover Financial leverage Liquidity Market valueCop

32、yright 2009 Pearson Education, Inc. Publishing as Prentice Hall24Profitability%6 . 72/4 .3133004 .23sEquityrStockHoldeNetIncome (RoE)Equity on Return %1 . 92/72060060alAssetsAverageTotEBIT (RoA) Assetson Return %3020060SalesEBIT (RoS) Saleson Return Copyright 2009 Pearson Education, Inc. Publishing

33、as Prentice Hall25Asset TurnoverTimes 3 . 02/720600200Assets Total AverageSales Turnover Asset Times 7 . 02/180150110Inventory AverageSold Goods ofCost Turnover Inventory Times 6 . 32/6050200sReceivable AverageSales Turnover sReceivableCopyright 2009 Pearson Education, Inc. Publishing as Prentice Ha

34、ll26Financial LeverageTimes 9 . 22160ExpenseInterest EBIT Earnt Interest Times%577206 .406Assets TotalDebt Total Debt Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall27LiquidityTimes 7 . 06 .256180sLiabilitieCurrent sReceivableCash Earnt Interest TimesTimes 4 . 16 .256360sLiabiliti

35、eCurrent AssetsCurrent Current Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall28Market Value6 . 04 .31320.187Shareper ValueBook Shareper Price Book Market to0 . 84 .232 .187Shareper EarningsSharePer Price Earnings toPriceCopyright 2009 Pearson Education, Inc. Publishing as Prentic

36、e Hall29Ratio Comparisons Establish Your Perspective Shareholder Employee, Management, or Union Creditor Predator, Customer, Supplier, Competitor, Trade Association Benchmarks Other companies ratios The firms historical ratios Data extracted from financial markets Sources Dun & Bradstreet, Rober

37、t Morris, Commerce Departments Quarterly Financial Report, Trade AssociationsCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall30Relationships Amongst Ratios It is sometimes valuable to decompose ratios into sums, differences, products and quotients of other ratios. Many such schemes

38、 start with:TurnoverAsset * saleson Return *AssetsSalesSalesEBITAssetsEBITRoACopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall31Ratio Analysis Limitations Ratio analysis indicates where you might profitably focus your attention, but it can also mislead you Look for collaborating evi

39、dence for the hypotheses you form from the ratios Sound long-term goals of a firm may cause ratios to look awful. Management-by-ratios may not be in the firms long-term interest Companies in the same industry may have very different distribution channels, and accounting methods, leading to markedly

40、different ratios that are none-the-less appropriate to each companyCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall32Comment: Always keep in mind that financial statements are prepared according to accounting standards and traditions, and that they do not fully satisfy the needs of

41、 a financial analysts They do yield useful information if used with care and understandingCopyright 2009 Pearson Education, Inc. Publishing as Prentice Hall33Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall34Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall35Nodebt

42、HalfdebtEBIT120,000120,000Interest050,000Taxable Income120,00070,000Tax 48,00028,000Net Income72,00042,000Equity1,000,000500,000ROE7.20%8.40%Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall36NodebtHalfdebtEBIT120,000120,000Interest075,000Taxable Income120,00045,000Tax 48,00018,000N

43、et Income72,00027,000Equity1,000,000500,000ROE7.20%5.40%Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall37EconomicROAROEROEConditionsNodebtHalfdebt Bad Year1%0.6%-4.8% Normal Year12%7.2%8.4% Good Year30%18.0%30.0%Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall38C

44、opyright 2009 Pearson Education, Inc. Publishing as Prentice Hall39Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall40Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall41Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall42Copyright 2009 Pearson Educat

45、ion, Inc. Publishing as Prentice Hall43Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall44Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall45Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall46Copyright 2009 Pearson Education, Inc. Publishing as Pren

46、tice Hall47Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall48Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall49Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall50Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall51GPC Financial Sta

47、tements, Years xxx1 - xxx3 (Nearest $ Million) (Percent of Years Sales)Year xxx0 xxx1xxx2xxx3xxx1xxx2xxx3Income StatementSales200240288100.0% 100.0% 100.0%Cost of goods sold11013215855.0%55.0%55.0%Gross margin9010813045.0%45.0%45.0%Selling, general & admin. expenses30364315.0%15.0%15.0%EBIT60728

48、630.0%30.0%30.0%Interest expenses30456415.0%18.8%22.2%Taxes121196.0%4.5%3.1%Net income1816139.0%6.7%4.7%Dividends5542.7%2.0%1.4%Change in shareholders equity131196.3%4.7%3.3%Balance SheetAssets: Cash & equivalents101214176.0%6.0%6.0% Receivables4048586924.0%24.0%24.0% Inventories5060728630.0%30.

49、0%30.0% Property, Plant & equipment500600720864300.0% 300.0% 300.0% Total Assets6007208641037360.0% 360.0% 360.0%Liabilities: Payables3036435218.0%18.0%18.0% Short-term debt120221347502110.7% 144.6% 174.2% Long-term debt15015015015075.0%62.5%52.1% Total Liabilities300407540704203.7% 225.1% 244.3

50、%Shareholders equity300313324333156.3% 134.9% 115.7%Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall52 (Nearest $ Million) Year xxx0 xxx1xxx2xxx3Income StatementSales200240288Cost of goods sold110132158Gross margin90108130Selling, general & admin. expenses303643EBIT607286Intere

51、st expenses304564Taxes12119Net income181613Dividends554Change in shareholders equity13119Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall53Balance SheetAssets: Cash & equivalents10121417 Receivables40485869 Inventories50607286 Property, Plant & equipment500600720864 Total A

52、ssets6007208641037Liabilities: Payables30364352 Short-term debt120221347502 Long-term debt150150150150 Total Liabilities300407540704Shareholders equity300313324333Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall54 (Percent of Years Sales)Yearxxx1xxx2xxx3Income StatementSales100.0%

53、100.0% 100.0%Cost of goods sold55.0%55.0%55.0%Gross margin45.0%45.0%45.0%Selling, general & admin exp.15.0%15.0%15.0%EBIT30.0%30.0%30.0%Interest expenses15.0%18.8%22.2%Taxes6.0%4.5%3.1%Net income9.0%6.7%4.7%Dividends2.7%2.0%1.4%Change in equity6.3%4.7%3.3%Copyright 2009 Pearson Education, Inc. P

54、ublishing as Prentice Hall55Balance SheetAssets: Cash & equivalents6.0%6.0%6.0% Receivables24.0%24.0%24.0% Inventories30.0%30.0%30.0% Property, Plant & equipment 300.0% 300.0% 300.0% Total Assets360.0% 360.0% 360.0%Liabilities: Payables18.0%18.0%18.0% Short-term debt110.7% 144.6% 174.2% Long

55、-term debt75.0%62.5%52.1% Total Liabilities203.7% 225.1% 244.3%Shareholders equity156.3% 134.9% 115.7%Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall56Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall57Copyright 2009 Pearson Education, Inc. Publishing as Prentice

56、Hall58Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall59Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall60Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall61Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall62GPC Financial Statemen

57、ts, Years xxx1 - xxx3 (Nearest $ Million) (Percent of Years Sales)Yearxxx0 xxx1xxx2xxx3xxx1xxx2xxx3F(sales)? xxx4Income StatementSales200240288100.0% 100.0% 100.0% N/A346Cost of goods sold11013215855.0%55.0%55.0% Yes190Gross margin9010813045.0%45.0%45.0% N/A(Yes)156Selling, general & admin. expe

58、nses30364315.0%15.0%15.0% Yes52EBIT60728630.0%30.0%30.0% N/A104Interest expenses30456415.0%18.8%22.2% No87Taxes121196.0%4.5%3.1% N/A7Net income1816139.0%6.7%4.7% N/A10Dividends5542.7%2.0%1.4% N/A3Change in shareholders equity131196.3%4.7%3.3%7Balance SheetAssets: Cash & equivalents101214176.0%6.

59、0%6.0% Yes21 Receivables4048586924.0%24.0%24.0% Yes83 Inventories5060728630.0%30.0%30.0% Yes104 Property, Plant & equipment500600720864300.0% 300.0% 300.0% Yes1037 Total Assets6007208641037360.0% 360.0% 360.0% N/A(Yes)1244Liabilities: Payables3036435218.0%18.0%18.0% Yes62 Short-term debt12022134

60、7502110.7% 144.6% 174.2% No Long-term debt15015015015075.0%62.5%52.1% No Total Liabilities300407540704203.7% 225.1% 244.3%N/A904Shareholders equity300313324333156.3% 134.9% 115.7%N/A340Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall63Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall64GPC Financial Statements, Years xxx1 - xxx3 (Nea