Understanding Financial Statements, Taxes, and Cash Flows

Copyright © 2011 Pearson Prentice Hall. All rights reserved.

Understanding Financial Statements, Taxes, and Cash Flows

Chapter 3

Copyright © 2011 Pearson Prentice Hall. All rights reserved.3-2

Slide Contents

• Learning Objectives• Principles Used in This Chapter

1.An Overview of the Firm’s Financial Statements

2.The Income Statement3.Corporate Taxes 4.The Balance Sheet5.The Cash Flow Statement

• Key Terms


Learning Objectives

1. Describe the content of the four basic financial statements and discuss the importance of financial statement analysis to the financial manager.

2. Evaluate firm profitability using the income statement.

3. Estimate a firm’s tax liability using the corporate tax schedule and distinguish between the average and marginal tax rate.


Introduction

• Use the balance sheet to describe a firm’s investments in assets and the way it has financed them.

• Identify the sources and uses of cash flow for a firm using the firm’s Cash Flow Statement.


Principles Used in This Chapter

• Principle 1: Money Has a Time Value.– We need to recognize that financial statements do not adjust for time value of money.


Principles Used in This Chapter (cont.)

• Principle 3: Cash Flows Are the Source of Value.– Financial statements provide an important starting point in determining the firm’s cash flow.

– We should be able to distinguish between reported earnings and cash flow. It is possible for a firm to report positive earnings but have no cash!


Principles Used in This Chapter (cont.)

• Principle 4: Market Prices Reflect Information.– Firm’s financial statements provide important information that is used by investors in forming expectations about firm’s future prospects and subsequently, the market prices.


3.1 An Overview of the Firm’s Financial Statements


Basic Financial Statements

• Following four types of financial statements are mandated by the accounting and financial regulatory authorities:1. Income statement2. Balance sheet3. Cash flow statement4. Statement of shareholder’s equity


Basic Financial Statements (cont.)

• 1. Income Statement:– An income statement provides the following information for a specific period of time (for example, a year or 6 months or 3 months):• Revenue, • Expenses, and• Profit.



• 2. Balance sheet:– Balance sheet provides a snap shot of the following on a specific date (for example, as of December 31, 2010)• Assets (value of what the firm owns),• Liabilities (value of firm’s debts), and• Shareholder’s equity (the money invested by the company owners).



• 3. Cash flow statement:– It reports cash received and cash spent by the firm over a period of time (for example, over the last 6 months).



• 4. Statement of shareholder’s equity:– It provides a detailed account of the firm’s activities in the following accounts over a period of time (for example, last six months):• Common stock account,• Preferred stock account,• Retained earnings account, and• Changes to owner’s equity.


What is the Focus of this Chapter?

• Discuss the basic Content and Format of:– Income statement,– Balance sheet, and– Cash flow statement


Why Study Financial Statements?

• Analyzing a firm’s financial statement can help managers carry out three important tasks:1. Assess current performance through

financial statement analysis,2. Monitor and control operations, and3. Forecast future performance.


Why Study Financial Statements? (cont.)

1. Financial statement analysis:– Financial statement analysis allows us

to assess the present financial condition of a firm.

– Chapter 4 introduces the tools and techniques used to carry out financial statement analysis.



2. Financial control:– Financial statements are used by both

insiders (such as managers, board of directors) and outsiders (such as suppliers, creditors) to monitor and control the firm’s operations.

– For example, a creditor may analyze a firm’s financial statements to decide whether or not to renew company’s loan.



3. Financial forecasting and planning:– Financial planning models are typically

built using the financial statements.– Financial planning is covered in

chapter 17.


What are the Accounting Principles Used to Prepare Financial Statements?

• The following three fundamental principles are adhered to by accountants when preparing financial statements:1. The revenue recognition principle, 2. The matching principle, and 3. The historical cost principle.

• An understanding of these basic principles allows us to be a more informed user of financial statements.


What are the Accounting Principles Used to Prepare Financial Statements? (cont.)

1. The revenue recognition principle:– It states that the revenue should be

included in the firm’s income statement for the period in which:• Its goods and services were exchanged

for cash or accounts receivable; or• The firm has completed what it must

do to be entitled to the cash.



2. The matching principle:– This principle determines whether specific costs or expenses can be attributed to this period’s revenues.

– The expenses are matched with the revenues they helped produce.• For example, employees’ salaries are recognized when the product produced as a result of that work is sold, and not when the wages were paid.



3. The historical cost principle: – This principle provides the basis for determining the dollar values the firm reports in its balance sheet.

– Most assets and liabilities are reported in the firm’s financial statements at historical cost i.e. the price the firm paid to acquire them. The historical cost generally does not equal the current market value of the assets or liabilities.


3.2 The Income Statement


An Income Statement

• An income statement is also called a profit and loss statement.

• An income statement measures the amount of profits generated by a firm over a given time period (usually a year or a quarter).


An Income Statement (cont.)

• Income statement can be expressed as follows:

– Revenues (or Sales) – Expenses = Profits



• An income statement will contain the following basic elements:1. Revenues2. Expenses

• Cost of goods sold, Interest expenses, SGA (selling, general and administrative) expense, depreciation expense, Income tax expense

3. Profits• Gross profit, net operating income (also known as EBIT), earnings before taxes (EBT), and net income



• SalesSales– Minus Cost of Goods SoldMinus Cost of Goods Sold

• = Gross Profit= Gross Profit• Minus Operating ExpensesMinus Operating Expenses

– Selling expensesSelling expenses– General and Administrative expensesGeneral and Administrative expenses– Depreciation and Amortization ExpenseDepreciation and Amortization Expense

• = Operating income (EBIT)= Operating income (EBIT)• Minus Interest ExpenseMinus Interest Expense• = Earnings before taxes (EBT)= Earnings before taxes (EBT) • Minus Income taxesMinus Income taxes

• = Net income (EAT)= Net income (EAT)

– EBIT = Earnings before interest and taxes; EBT = Earnings before taxes; EAT = Earnings after taxes


Sample Income Statement


Evaluating a Firm’s EPS and Dividends

• We can use the income statement to determine the earnings per share (EPS) and dividends.

• EPS = Net income÷ Number of shares outstanding


Evaluating a Firm’s EPS and Dividends (cont.)

• Example 1: A firm reports a net income $90 million and has 35 million shares outstanding, what will be the earnings per share (EPS)?

• EPS = Net income ÷ Number of shares= $90 million ÷ $35 million = $2.57



• We can determine the dividends paid by the firm to each shareholder by dividing the total amount of dividend (reported on the income statement) by the total number of shares outstanding.

• Dividends per share = Net income ÷ Number of shares



• Example 2: A firm reports dividend payment of $20 million on its income statement and has 35 million shares outstanding. What will be the dividends per share?

• Dividends per share = Net income ÷ Number of shares

= $20 million ÷ $35 million

= $0.57


Connecting the Income Statement and the Balance Sheet

• What can the firm do with the net income?:1. Pay dividends to shareholders, and/or 2. Reinvest in the firm


Connecting the Income Statement and the Balance Sheet (cont.)

• Example 3: Review examples 1 & 2. How much was retained or reinvested by the firm?

• Amount retained = Net Income – Dividends

= $90m - $20m = $70m• The firm’s balance on retained earnings will increase by $70 million on the balance sheet.


Interpreting Firm Profitability using the Income Statement

• What can we learn from H.J. Boswell Inc.’s income statement (Table 3-1)?

1. The firm has been profitable as its revenues exceeded its expenses.


Interpreting Firm Profitability using the Income Statement (cont.)

2. The gross profit margin (GPM) = gross profits ÷ sales = $675 million ÷ $2,700 million = 25%

– GPM indicates the firm’s “mark-up” on its cost of goods sold per dollar of sales.



3. The operating profit margin= net operating income ÷ sales= $382.5 million ÷ $2,700 million= 14.17%

• The operating profit margin is equal to the ratio of net operating income or EBIT divided by firm’s sales.



Net profit margin: = net profits ÷ sales= $204.75 million ÷ $2,700 million= 7.58%

• Net profit margin indicates the percentage of revenues left after all expenses (including interest and taxes) have been considered.



• These profit margins (gross profit margin, operating profit margin, and net profit margin) should be closely monitored and compared to previous years and those of competing firms.


GAAP and Earnings Management

• While the firms must adhere to set of accounting principles, GAAP (Generally Accepted Accounting Principles), there is considerable room for managers to influence the firm’s reported earnings.

• Managers have an incentive to tamper with reported earnings as their pay depends upon it and investors care about it.


Checkpoint 3.1

Constructing an Income StatementUse the following information to construct an income statement for Gap, Inc. (GPS). The Gap is a specialty retailing company that sells clothing, accessories, and personal care products under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brand names. Use the scrambled information below to calculate the firm’s gross profits, operating income, and net income for the year ended January 31, 2009. Calculate the firm’s earnings per share and dividends per share.


Checkpoint 3.1


Checkpoint 3.1


Checkpoint 3.1: Check Yourself

Reconstruct the Gap’s income statement assuming the firm is able to cut its cost of goods sold by 10% and where the firm pays taxes at 40% tax rate. What is the firm’s net income and earnings per share?


Step 1: Picture the Problem

• The income statement can be expressed as follows:

Revenues – Expenses = Net Income

• The template on the next slide can be used to solve the equation.

• We are given information on revenues and expenses (cost of goods sold, operating expenses, interest expense and income taxes) to fill the template.


Step 1: Picture the Problem (cont.)

• Revenues

Less: Cost of goods sold

Equals Grossprofit

Less: Operating expenses

Equals: net Operating income

Less: Interest expense

Equals: earnings Before taxes

Less: Income taxes

Equals:NET INCOME


Step 2: Decide on a Solution Strategy

• Given the account balances, constructing the income statement will entail substituting the appropriate balances into the template of step 1.


Step 3: Solve

• Revenues = $14,526,000,000

Less: Cost of goods sold= $8,171,100,000

Equals: profit=$6,354,900,000

Less: Operating expenses=$3,899,000,000

Equals: net Operating income=$2,455,900,000

Less: Interest expense=$1,000,000

Equals: earnings Before taxes=$2,454,900,000

Less: Income taxes (40%)=$9,819,600,000

Equals:NET INCOME=$1,472,940,000


Step 3: Solve (cont.)

• Earnings per share:= net income ÷ number of shares= $1,472,940,000 ÷ 716,296,296= $2.06

• Dividends per share= dividends ÷ number of shares= $243,000,000 ÷ 716,296,296 = $0.34


Step 4: Analyze

• The firm is profitable since it earned net income of $1,472,940,000.

• The shareholders were able be earn $2.06 per share. However, the dividends per share were only $0.34 indicating that the difference of $1.72 was reinvested in the corporation.


3.3 Corporate Taxes


Corporate Taxes

• A firm’s income tax liability is calculated using its taxable income and the tax rates on corporate income.

• See the table on next slide for corporate tax rates.


Corporate tax rates


Corporate tax rates

• The table reveals the following:– Tax rates range from 15% to 39%– Tax rates are progressive i.e. larger corporations with higher profits will tend to pay more taxes compared to smaller firms with lower profits.

– Note: In addition to federal taxes, a firm may face State and City taxes.


Marginal and Average Tax Rates

• While analyzing the tax consequences of a new business venture, the appropriate tax rate is the marginal tax rate.

• Marginal tax rate is the tax rate that the company will pay on its next dollar of taxable income.

• Average tax rate is total taxes paid divided by the taxable income.



• Example 3: What is the average and marginal tax liability for a firm reporting $100,000 as taxable income.



• Average tax rate – = Total tax liability ÷ Total taxable income

– = $22,250 ÷ $100,000– = 22.25%

• Marginal tax rate– = 39% as the firm will have to pay 39% on its next dollar of taxable income i.e. if its taxable income increases from $100,000 to $100,001.


Dividend Exclusion for Corporate Shareholders

• The dividend received by corporate stockholders are partially exempt from taxation. The rationale is to avoid double taxation at the corporate level. The percentage of exempt taxes is based on the degree of ownership of the firm.

• Note dividends for non-corporate investors, like you and me, are not exempt from taxation – they are actually, double-taxed.


Dividend Exclusion for Corporate Shareholders

• Example 4 – What will be the taxable income if firm ABC receives $200,000 in dividends from firm XYZ.

– The taxable income will depend on the degree of ownership of XYZ by ABC.

– See next slide.


Dividend Exclusion for Corporate Shareholders (cont.)

Ownership Interest

Dividend Exclusion

Dividend Income

Taxable Income

Less than 20%

70% $200,000 $60,000

20% to 79%

75% $200,000 $50,000

80% or more

100% $200,000 $0


3.4 The Balance Sheet


The Balance Sheet

• The balance sheet provides a snapshot of the firm’s financial position on a specific date.

• The balance sheet is defined by the following equation:Total Assets = Total Liabilities + Total Shareholder’s Equity


The Balance Sheet (cont.)

• Total assets represents the resources owned by the firm.

• Total liabilities represent the total amount of money the firm owes its creditors

• Total shareholders’ equity refers to the difference in the value of the firm’s total assets and the firm’s total liabilities.



• In general, GAAP requires that the firm report assets on its balance sheet using the historical costs.

• Cash and assets held for sale (such as marketable securities) are an exception to the rule. These assets are reported using the lower of their cost or current market value.



• Assets whose value is expected to decline over time (such as equipment) is reported as “net equipment” which is equal to the historical cost minus accumulated depreciation.

• Note, the net value reported on balance sheet could be significantly different from the market value of the asset.





• The balance sheet includes the following main components:

1.Assets – Found on the left-hand side of the balance sheet. It includes current assets and fixed assets.

2.Sources of financing – Found on the right-hand side of the balance sheet. It includes current liabilities, long-term liabilities, and owner’s equity.



• Current assets consists of firm’s cash plus other assets the firm expects to convert to cash within 12 months or less, such as receivables and inventory.

• Fixed assets are assets that the firm does not expect to sell within one year. For example, plant and equipment, land.



• Current liabilities represent the amount that the firm owes to creditors that must be repaid within a period of 12 months or less such as accounts payable, notes payable.

• Long-term liabilities refer to debt with maturities longer than a year such as bank loans, bonds.



• The stockholder’s equity is broken down into two components:

(1) The amount the company received from selling stock to investors. It may be shown as common stock in the balance sheet or it may be divided into two components: par value and additional paid in capital above par. Par value is the stated or face value a firm puts on each share of stock. Paid in capital is the additional amount the firm raised when it sold the shares.



• For example, DLK corporation’s par value per share is $2.00 and the firm has 30 million shares outstanding such that the par value of the firm’s common equity is $60 million. If the stocks were issued to investors for $240 million, $180 million represents paid in capital.



• (2) The amount of the firm’s retained earnings. Retained earnings are the portion of net income that has been retained (i.e. not paid in dividends) from prior years operations.

• Thus stockholder’s equity = Par value of common stock + Paid in Capital + Retained Earnings



• We can also express stockholders’ equity as follows:

Shareholders' equity = Total Assets – Total Liabilities


Firm Liquidity and Net Working Capital

• Liquidity refers to the speed with which an the asset can be converted to cash without loss of value.

• For example, a firm’s bank account is perfectly liquid. Other types of assets are less liquid as they more difficult to sell and convert to cash such as PPE (property, plant and equipment).


Firm Liquidity and Net Working Capital

• For the overall firm, liquidity generally refers to the firm’s ability to covert its current assts (accounts receivable and inventories) into cash so that it can pay its bills (current liabilities) on time.

• We can thus measure a firm’s liquidity by computing the net working capital = current assets – current liabilities


Firm Liquidity and Net Working Capital (cont.)

• If a firm’s net working capital is significantly positive, it is in a good position to pay its debts on time and is consequently very liquid.

• Lenders consider the net working capital as an important indicator of firm’s ability to repay its loans.


The Balance Sheet


Checkpoint 3.2

Constructing a Balance SheetConstruct a balance sheet for Gap, Inc. (GPS) using the following list of jumbled accounts for January 31, 2009. Identify the firm’s total assets and net working capital:


Checkpoint 3.2


Checkpoint 3.2


Checkpoint 3.2



Reconstruct the Gap’s balance sheet to reflect the repayment of $1 billion in short-term debt using a like amount of the firm’s cash. What is the balance for total assets and current liabilities?



• The firm’s balance sheet can be expressed as follows:

Total Shareholders’ Equity + Total Liabilities = Total Assets

• The template on the following slide shows how to construct the balance sheet.



Current AssetsCashAccounts ReceivableInventoriesOther current assetsTotal current assets

Current LiabilitiesAccounts payableShort-term debtOther current liabilities

Total current liabilities

Long-term LiabilitiesLong-term debt

Long-term (fixed) assetsGross PPELess: Accumulated depreciationNet property, plant and equip.

Other long-term assets

Total long-term assets

Owner’s EquityPar value of common stockPaid-in-capitalRetained earningsTotal equity

Total Assets Total Liabilities and Owners’ equity



• We are given the account balances so in order to construct the balance sheet we need to substitute the appropriate balances into the template developed in step 1.


Step 3: Solve

CashInventoriesOther current assets

756,000,0001,506,000,000 743,000,000

Current liabilities

1,158,000,000

Total current assets

3,005,000,000 Total current liabilities

1,158,000,000

Net Property, Plant and equipment

2,993,000,000 Long-term liabilities

1,019,000,000

Other long-term assets

626,000,000 Common Equity 4,387,000,000

Total Assets $6,564,000,000

Total Liabilities and Equity

$6,564,000,000


Step 4: Analyze

• We can make the following observations from Gap’s Balance sheet:– The total assets of $6,564,000,000 is financed by a combination of current liabilities, long-term liabilities and owner’s equity. Owner’s equity accounts for $4,387,000,000 of the total.

– The firm has a healthy net working capital of $1,847,000,000 (3,005,000,000 minus 1,158,000,000).


Debt and Equity Financing

• The right-hand side of the balance sheet reveals the sources of money used to finance the purchase of the firm’s assets listed on the left-hand side of the balance sheet.

• It shows how much was borrowed (debt financing) and how much was provided by firm’s owners (equity financing, through the sale of equity or retention of prior year’s earnings).


Debt versus Equity

• Payment: Payment for debt holders is generally fixed (in the form of interest); Payment for equity holders (dividends) is not fixed nor guaranteed.

• Seniority: Debt holders are paid before equity holders in the event of bankruptcy.

• Maturity: Debt matures after a fixed period while equity securities do not mature.


Book Values, Historical Costs, and Market Values

• Book values (based on historical cost) reported in the balance sheet can differ from market values.

• The gap between book value and market value is likely to be higher for fixed assets relative to current assets for two reasons:– Inflation affects the market price of asset; and

– Depreciation adjustments in the balance sheet do not reflect actual changes in market values.


3.5 The Cash Flow Statement


The Cash Flow Statement

• The Cash Flow Statement is used by firms to explain changes in their cash balances over a period of time by identifying all of the sources and uses of cash.


Sources and Uses of Cash

• Source of cash is any activity that brings cash into the firm. For example, sale of equipment.

• Use of cash is any activity that causes cash to leave the firm. For example, payment of taxes.


Balance Sheet for H.J. Boswell, Inc.


Cash Flow Analysis

• Why did the cash balance decline by $4.5 million from 2009 to 2010?

1.Accounts receivable increased by $22.5 million representing an increase in uncollected cash from credit sales. Thus it represents $22.5m of use of cash to invest in accounts receivable.


Cash Flow Analysis (cont.)

2. Inventory increased by $148.50 million indicating use of cash to procure inventory.

3. Equipment increased by $175.50 million indicating use of cash to invest in equipment.

In general, – an increase in an asset account = use of

cash– a decrease in an asset account = source

of cash



4. Accounts Payable, credit extended to the firm, increased by $4.5million. Thus source of cash increased by $4.5million due to accounts payable.

5. Long-term debt increased by $51.75 million indicating a source of cash.

6. Short-term debt decreased by $9 million indicating use of cash to pay off the debt.



7. Retained earnings increased by $159.75 million representing a source of cash to the firm from the firm’s operations.

In general, – An increase in a liability account = source of cash

– A decrease in a liability account = use of cash



• Change in cash balance = Sources of cash – Use of Cash = $216 - $220.50 = -$4.50

Sources of Cash Uses of Cash

Increase in Accounts Payable = $4.50

Increase in Accounts Receivable $22.50

Increase in long-term debt =$51.75

Increase in inventory = $148.50

Increase in retained earnings = $159.75

Increase in net plant and equipment = $40.50

Decrease in short-term notes = $9

Total Sources of cash = $216.00

Total Uses of cash = $220.50



• An analysis of H.J. Boswell’s operations reveals the following for 2010:– The firm used more cash than it generated, resulting in a deficit of $4.5 million

– The primary source of cash flow was retained earnings ($159.75 million) followed by long-term debt ($51.75 million)

– The largest use of cash was for acquiring inventory at $148.5 million.


Cash Flow Analysis Summary

Sources of Cash Uses of Cash

Decrease in an asset account

Increase in an asset account

Increase in a liability account

Decrease in a liability account

Increase in an owner’s equity account

Decrease in an owners’ equity account


Cash Flow Statement

• The format for a traditional cash flow statement is as follows:

Beginning Cash BalancePlus: Cash Flow from Operating

ActivitiesPlus: Cash Flow from Investing

ActivitiesPlus: Cash Flow from Financing

ActivitiesEquals: Ending Cash Balance


Cash Flow Statement (cont.)

• Operating activities represent the company’s core business including sales and expenses. Basically any activity that affects net income for the period.

• Investing activities include the cash flows that arise out of the purchase and sale of long-term assets such as plant and equipment.


Cash Flow Statement (cont.)

• Financing activities represent changes in the firm’s use of debt and equity such as issue of new shares, payment of dividends.


H.J. Boswell, Inc.Statement of Cash Flows


Checkpoint 3.3Interpreting the Statement of Cash FlowYou are in your second rotation in the management training program at a regional brokerage firm and your supervisor calls you into her office on Monday morning to discuss your next training rotation. When you enter her office you are surprised to learn that you will be responsible for compiling a financial analysis of Chesapeake Energy Inc. (CHK). Chesapeake is the largest producer of natural gas in the United States and is headquartered in Oklahoma City. Your boss suggests that you begin your analysis by reviewing the firm’s cash flow statements for 2004 through 2007 (found below):


Checkpoint 3.3


Checkpoint 3.3


Checkpoint 3.3


Checkpoint 3.3



Go to http:finance.google.com/finance and get the cash flow statements for the most recent four-year period for Exco Resources (XCO). How does their cash from investing activities compare to their cash flow from operating activities in 2009.



• The cash flow statement uses information from the firm’s balance sheet and income statement to identify the net sources and uses of cash for a specific period of time.

• The sources and uses of cash are organized into cash from operating activities, investing activities, and financing activities.



• The format for a traditional cash flow statement is as follows:

Beginning Cash BalancePlus: Cash Flow from Operating

ActivitiesPlus: Cash Flow from Investing

ActivitiesPlus: Cash Flow from Financing

ActivitiesEquals: Ending Cash Balance



• Here we have to compare the cash flow from operating activities and investment activities in 2007 for Exco Resources (XCO).



• We can compare the cash flow from operating activities and cash flow from investing activities by looking at the cash flow statement.

• The cash flow statement can be retrieved from http://finance.google.com/finance


Step 3: Solve

• Cash flow from operating activities– EXCO had a positive cash flow from operating activities of $577.83 million in 2007. In 2006, the cash flow from operating activities was much lower at $227.86.

– The primary contributors to the operating cash flows in 2007 were the firm’s depreciation/depletion expense and non-cash expense. Net working capital is a use of cash.


Step 3: Solve (cont.)

• Cash flow from investing activities:

– Cash flow from investing activities were ($2,396.44) million in 2007.

– EXCO had invested heavily in capital expenditures in 2007 with a total expense of $2,846.97 million.


Step 4: Analyze

• The cash flow statement for 2007 depicts a profitable firm with positive cash flow from operations.

• The firm has been aggressively investing in fixed assets to the tune of almost 4 times its operating cash flows.

• The firm has been able to successfully raise money from capital markets by issuing stocks of nearly $2,000 million.


Key Terms

• Accounts receivable• Accounts payable• Accumulated depreciation• Paid-in-capital• Average tax rate• Balance sheet• Cash flow statement


Key Terms (cont.)

• Cost of goods sold• Current assets• Current liabilities• Depreciation expense• Dividends per share• Earnings before interest and taxes (EBIT)

• Earnings per share


Key Terms (cont.)

• Fixed assets• Gross plant and equipment• Gross profit margin• Income statement• Inventories• Liquidity• Long-term debt


Key Terms (cont.)

• Marginal tax rate• Market value• Net operating income• Net income• Net plant and equipment• Net profit margin• Net working capital


Key Terms (cont.)

• Operating profit margin• Par value• Profits• Retained earnings• Revenues• Source of cash• Stockholders’ equity


Key Terms (cont.)

• Taxable income• Total assets• Total liabilities• Total shareholders’ equity• Uses of cash

Documents

Understanding Financial Statements, Taxes, and Cash Flows