FIN301 Class Web Page, Fall ' 23

Instructor: Maggie Foley

Jacksonville University

 

The Syllabus 

 

Weekly SCHEDULE, LINKS, FILES and Questions

Chapter

Coverage, HW, Supplements

-       Required

References

 

Chapter 1, 2

 

Marketwatch Stock Trading Game (Pass code: havefun)

Use the information and directions below to join the game.

1.      URL for your game: 
https://www.marketwatch.com/game/fin301-23fall

 

2.    Password for this private game: havefun

3.      Click on the 'Join Now' button to get started.

4.      If you are an existing MarketWatch member, login. If you are a new user, follow the link for a Free account - it's easy!

5.      Follow the instructions and start trading!

 

3. Risk Tolerance Test (FYI)

 

How To Win The MarketWatch Stock Market Game (youtube, FYI) finviz example

 

How Short Selling Works (Short Selling for Beginners) (youtube, FYI)

 

image001.jpg

 

 

Chapter 1: Introduction

 

ppt

 

 

 Note:

Flow of funds describes the financial assets flowing from various sectors through financial intermediaries for the purpose of buying physical or financial assets.

*** Household, non-financial business, and our government

 

Financial institutions facilitate exchanges of funds and financial products.

*** Building blocks of a financial system. Passing and transforming funds and risks during transactions.

*** Buy and sell, receive and deliver, and create and underwrite financial products.

*** The transferring of funds and risk is thus created. Capital utilization for individual and for the whole economy is thus enhanced.

 

The factors that could cause the next financial crisis are

       Pandemic

       Global warming

       War

       Inflation

       QE

       student loan

       government debt

       tax reform

       Natural disaster

       Covid

       War between Ukraine and Russia

       College tuition

       Potential war between Taiwan and China

       Supply chain issues

       Used car price

       AI

       Banking crisis

       Extreme Weather

       Life style changes

       ?

Expect recession around year end: JPMorgan's Bob Michele (youtube)

 

85% probability of recession over next 12 months, don't expect a severe one: BMO's Adatia (youtube) (FYI)

 

 

Chapter 2 Introduction of Financial Market

 

ppt

 

1.     What are the six parts of the financial markets

Money:

       To pay for purchases and store wealth (fiat money, fiat currency)

Financial Instruments:

       To transfer resources from savers to investors and to transfer risk to those best equipped to bear it.

Financial Markets:

       Buy and sell financial instruments

       Channel funds from savers to investors, thereby promoting economic efficiency

       Affect personal wealth and behavior of business firms. Example?

Financial Institutions.

       Provide access to financial markets, collect information & provide services

       Financial Intermediary: Helps get funds from savers to investors

Central Banks

       Monitor financial Institutions and stabilize the economy

Regulatory Agencies

       To provide oversight for financial system.

 

2.     What are the five core principals of finance

  • Time has value
  • Risk requires compensation
  • Information is the basis for decisions
  • Markets determine prices and allocation resources
  • Stability improves welfare

 

 

No homework for chapters 1, 2

The Bank Failures, Explained (FYI only) SVB Fallout: Wall Street Debates Moral Hazard (video)

https://www.nytimes.com/2023/03/14/briefing/silicon-valley-bank.html

By German Lopez, March 14, 2023

The collapse of Silicon Valley Bank and others and the governments rescue over the weekend left many of us again rushing to understand the arcane details of the financial system. It can be maddeningly complex, so I want to use todays newsletter to explain some of the basics.

First, the latest: Bank stocks plummeted yesterday, hitting midsize and smaller institutions in particular. Other financial markets gyrated as well, despite U.S. policymakers emergency help for customers of the closed banks. It didnt put calm back in the system, said my colleague Maureen Farrell, who covers business.

Why does this matter to everyday Americans? After all, SVB is relatively small and most of us keep no money in it.

The short answer is the potential for wider fallout. When banks collapse, other people sometimes fear that their own banks and investments will follow. Even healthy banks dont keep enough cash on hand to pay out all depositors, so if too many people panic at once and pull out their money a classic bank run it could lead to broader financial and economic calamity. And that is what the Biden administration and the Federal Reserve are trying to stop: a financial crisis largely prompted by plunging confidence.

How did we get to this point? To answer that, I need to dive into more detail about Silicon Valley Bank.

As its name suggests, the bank portrayed itself as focused on the leading edge of technology. And it served thousands of tech firms. Yet SVB invested their money in something much less exciting, as Paul Krugman wrote: U.S. bonds, effectively I.O.U.s from the federal government.

Because the federal government has always paid its bills, U.S. bonds are widely considered the safest investment. SVBs experience shows there are moments when even these safe investments may not pay off. The details get technical, but theyre worth unpacking to understand what went wrong.

Bonds are effectively money that the government borrows from buyers the public before paying them back later, with interest. Market conditions and the Federal Reserve, Americas central bank, help determine that interest rate.

When SVB bought bonds, interest rates were very low. Since then, the Federal Reserve, which sets certain influential rates, increased those to combat rising prices. Now, new bonds can carry interest multiple times higher than those SVB bought.

Imagine, then, that you want to buy bonds today. You would want the newer bonds because they have a higher payout. So when SVB needed to sell bonds, to raise cash that it could use for its customers withdrawals, it could do so only for a discount, taking a loss.

The bank failed to follow basic financial advice: Diversify your portfolio. Its not fraud, said Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics. But its an extremely risky, and obviously risky, strategy.

In the past few weeks, venture capitalists and other wealthy customers on social media and in private chats started discussing concerns that SVB could no longer pay its depositors. Some began to move their money out of the bank, and the situation spiraled quickly. Once you start asking, Are we having a bank run?, its too late, my colleague David Enrich, a business editor, said.

A regulatory failure

Financial regulations are supposed to stop these kinds of crises. But Silicon Valley Banks problems were not caught until it was too late which many experts say was a result of insufficient oversight.

Under pressure from banks in 2018, Congress passed bipartisan legislation that Donald Trump signed into law shielding smaller banks, like SVB, from more stringent rules. The banks argued that they were so small that they posed little risk to the broader financial system.

SVBs collapse and the aftermath suggest the banks claims were wrong: Even smaller bank failures can threaten the financial system as a whole, prompting some experts but not all to call for the federal government to get more involved.

Controlled slowdown

To readers of this newsletter, the Federal Reserves involvement in containing the fallout of Silicon Valley Banks collapse may be puzzling. The Fed, after all, has been raising interest rates to slow the economy. An economic slowdown inherently involves businesses, including banks, failing.

The Feds concern is that the bank collapses could go too far and pose bigger systemic risks beyond SVB. Think of it this way: You can stop a runaway car by blowing out its tires, potentially causing a crash. But it would be better if the car stopped by simply braking. Officials are trying to get the economy to brake to a safer speed one in which inflation isnt so high.

The economic slowdown that the Fed hopes for would still affect everyday Americans, in both lower prices and also potentially higher unemployment rates. But that outcome is better than an uncontrolled bank run that topples the financial system and takes the rest of the economy, and your 401(k), down with it.

 

In class exercise:

1. Why did Silicon Valley Bank collapse?

A) Insufficient customers

B) Inadequate oversight

C) Foreign investments

 

2. How did the government assist customers of closed banks?

A) Lowering interest rates

B) Providing emergency help

C) Imposing strict regulations

 

3. What potential fallout worries people when banks collapse?

A) Banks lacking in technology

B) Wider financial impact

C) Decreased interest rates

 

4. How did Silicon Valley Bank primarily invest its money?

A) U.S. bonds

B) Technology startups

C) Foreign currencies

 

5. What's the main goal of the Biden administration and the Federal Reserve?

A) Encourage bank runs

B) Prevent financial calamity

C) Promote high inflation

 

6. Why did SVB face challenges selling bonds for cash?

A) Low buyer interest

B) Favorable market conditions

C) High bond demand

 

7. How did experts describe SVB's investment strategy?

A) Fraudulent

B) Risky

C) Innovative

 

8. What triggered concerns about SVB's ability to pay depositors?

A) Social media discussions

B) Government warnings

C) SVB's advertising

 

9. Why did Congress pass legislation in 2018?

A) Encourage risk-taking

B) Protect smaller banks

C) Promote bigger banks

 

10. What's the primary concern for the Federal Reserve in this situation?

A) Lowering unemployment

B) Stopping inflation

C) Avoiding uncontrolled bank runs

 

 


 


 

 

Chapter 5 Time value of Money

ppt

The time value of money - German Nande (video)

 

Tutoring of Time Value of Money calculation in Excel video, FYI

 

 

Chapter 5 in class exercise (updated) Solution (newly added)

 

 

Chapter 5 Homework (due with the first mid term)

 

Homework VIDEOS FOR questions 11, 13, 20, 19, 3, 10 on 8/29/2023

 

Homework VIDEOS FOR questions on 8/31/2023

 

 

1.     You deposit $5,000 in a saving account at 10% compounded annually. How much is your first year interest? How much is your second year interest? (500, 550)

 

2.     What is the future value of $5,000 invested for 3 years at 10% compounded annually? ( 6,655)

 

3.     You just bought a TV for $518.4 on credit card. You plan to pay back of $50 a month for this credit card debt. The credit card charges you 12% of interest rate on the monthly basis. So how long does it take to pay back your credit card debt? (11 months)

 

4.     You are going to deposit certain amount in the next four years. Your saving account offers 5% of annual interest rate.

First year: $800

Second year: $900

Third year: $1000

Fourth year: $1200.

How much you can withdraw four years later? (4168.35)

 

5.     You are going to deposit certain amount in the next four years. Your saving account offers 5% of annual interest rate.

First year: $800

Second year: $900

Third year: $1000

Fourth year: $1200.

How much is the lump sum value as of today (NPV)? (3429.31)

 

6.     Ten years ago, you invested $1,000. Today it is worth $2,000. What rate of interest did you earn? (7.18%)

 

7.     At 5 percent interest, how long would it take to triple your money? (22.52)

 

8.     What is the effective annual rate if a bank charges you 12 percent compounded monthly? (12.68%)

 

9.     Your father invested a lump sum 16 years ago at 8% interest for your education. Today, that account worth $50,000.00. How much did your father deposit 16 years ago? ($14594.52)

 

10.  You are borrowing $300,000 to buy a house. The terms of the mortgage call for monthly payments for 30 years at 3% interest. What is the amount of each payment?  ($1264.81)

 

11.  You deposit $200 at the beginning of each month into your saving account every month. After two years (24 deposits total), your account value is $6,000. Assuming monthly compounding, what is your monthly rate that the bank provides? (1.74%)

 

12.  You want to buy a fancy car. For this goal, you plan to save $5,500 per year, beginning immediately. You will make 4 deposits in an account that pays 8% interest. Under these assumptions, how much will you have 4 years from today? ($26,766.31)

 

13.  The Thailand Co. is considering the purchase of some new equipment. The quote consists of a quarterly payment of $4,740 for 10 years at 6.5 percent interest. What is the purchase price of the equipment? ($138,617.88)

14.  Today, you are purchasing a 15-year, 8 percent annuity at a cost of $70,000. The annuity will pay annual payments. What is the amount of each payment? ($8,178.07)

15.  Shannon wants to have $10,000 in an investment account three years from now. The account will pay 0.4 percent interest per month. If Shannon saves money every month, starting one month from now, how much will she have to save each month? ($258.81)

16.  Trevor's Tires is offering a set of 4 premium tires on sale for $450. The credit terms are 24 months at $20 per month. What is the interest rate on this offer? (6.27 percent)

17.  Top Quality Investments will pay you $2,000 a year for 25 years in exchange for $19,000 today. What interest rate are you earning on this annuity? (9.42 percent)

18.  Around Town Movers recently purchased a new truck costing $97,000. The firm financed this purchase at 8.25 percent interest with monthly payments of $2,379.45. How many years will it take the firm to pay off this debt? (4.0 years)

19.  You just received a credit offer in an email. The company is offering you $6,000 at 12.8 percent interest. The monthly payment is only $110. If you accept this offer, how long will it take you to pay off the loan? (82.17 months)

20.  What is the future value of weekly payments of $25 for six years at 10 percent? ($10,673.90)

 

 

Summary of math and excel equations

 

Math Formula

FV = PV *(1+r)^n

PV = FV / ((1+r)^n)

N = ln(FV/PV) / ln(1+r)

Rate = (FV/PV)1/n -1

Annuity:

N = ln(FV/C*r+1)/(ln(1+r))

Or

N = ln(1/(1-(PV/C)*r)))/ (ln(1+r))

 

image001.jpg

 

 

 

 

Excel Formulas 

 

To get FV, use FV function.   

      =abs(fv(rate, nper, pmt, pv))

 

To get PV, use PV function                           

     = abs(pv(rate, nper, pmt, fv))

 

To get r, use rate function                          

     = rate(nper,  pmt, pv, -fv)

 

To get number of years, use nper function       

     = nper(rate,  pmt, pv, -fv)

 

To get annuity payment, use PMT function

     = pmt(rate, nper, pv, -fv)

 

To get Effective rate (EAR), use Effect function

 = effect(nominal_rate, npery)

 

To get annual percentage rate (APR), use nominal function

 = nominal(effective rate,  npery)

 

NPV NFV calculator(FYI, might be helpful)

www.jufinance.com/nfv

 

 

 

Time Value of Money Calculator

https://www.jufinance.com/tvm/

Chapter 3 Financial Statement Analysis

 

Ppt

 

Explaining 4 Financial Statements (youtube)

 

 

************* Introduction ***************

 

Lets compare Nike with GoPro based on 10K (www.nasdaq.com)

https://www.nasdaq.com/market-activity/stocks/nke/financials

 

Income Statement

 

Period Ending:

5/31/2023

5/31/2022

5/31/2021

5/31/2020

Total Revenue

$51,217,000

$46,710,000

$44,538,000

$37,403,000

Cost of Revenue

$28,925,000

$25,231,000

$24,576,000

$21,162,000

Gross Profit

$22,292,000

$21,479,000

$19,962,000

$16,241,000

Operating Expenses

Research and Development

--

--

--

--

Sales, General and Admin.

$16,377,000

$14,804,000

$13,025,000

$13,126,000

Non-Recurring Items

--

--

--

--

Other Operating Items

--

--

--

--

Operating Income

$5,915,000

$6,675,000

$6,937,000

$3,115,000

Add'l income/expense items

$280,000

$181,000

-$14,000

-$139,000

Earnings Before Interest and Tax

$6,201,000

$6,651,000

$6,661,000

$2,887,000

Interest Expense

--

--

--

--

Earnings Before Tax

$6,201,000

$6,651,000

$6,661,000

$2,887,000

Income Tax

$1,131,000

$605,000

$934,000

$348,000

Minority Interest

--

--

--

--

Equity Earnings/Loss Unconsolidated Subsidiary

--

--

--

--

Net Income-Cont. Operations

$5,070,000

$6,046,000

$5,727,000

$2,539,000

Net Income

$5,070,000

$6,046,000

$5,727,000

$2,539,000

Net Income Applicable to Common Shareholders

$5,070,000

$6,046,000

$5,727,000

$2,539,000

 

 

Balance Sheet

Period Ending:

5/31/2023

5/31/2022

5/31/2021

5/31/2020

Current Assets

Cash and Cash Equivalents

$7,441,000

$8,574,000

$9,889,000

$8,348,000

Short-Term Investments

$3,234,000

$4,423,000

$3,587,000

$439,000

Net Receivables

$4,131,000

$4,667,000

$4,463,000

$2,749,000

Inventory

$8,454,000

$8,420,000

$6,854,000

$7,367,000

Other Current Assets

$1,942,000

$2,129,000

$1,498,000

$1,653,000

Total Current Assets

$25,202,000

$28,213,000

$26,291,000

$20,556,000

Long-Term Assets

Long-Term Investments

--

--

--

--

Fixed Assets

$8,004,000

$7,717,000

$8,017,000

$7,963,000

Goodwill

$281,000

$284,000

$242,000

$223,000

Intangible Assets

$274,000

$286,000

$269,000

$274,000

Other Assets

--

--

--

--

Deferred Asset Charges

$3,770,000

$3,821,000

$2,921,000

$2,326,000

Total Assets

$37,531,000

$40,321,000

$37,740,000

$31,342,000

Current Liabilities

Accounts Payable

$8,825,000

$9,800,000

$9,205,000

$7,588,000

Short-Term Debt / Current Portion of Long-Term Debt

$6,000

$510,000

$2,000

$251,000

Other Current Liabilities

$425,000

$420,000

$467,000

$445,000

Total Current Liabilities

$9,256,000

$10,730,000

$9,674,000

$8,284,000

Long-Term Debt

$8,927,000

$8,920,000

$9,413,000

$9,406,000

Other Liabilities

$2,786,000

$2,777,000

$2,931,000

$2,913,000

Deferred Liability Charges

$2,558,000

$2,613,000

$2,955,000

$2,684,000

Misc. Stocks

--

--

--

--

Minority Interest

--

--

--

--

Total Liabilities

$23,527,000

$25,040,000

$24,973,000

$23,287,000

Stock Holders Equity

Common Stocks

$3,000

$3,000

$3,000

$3,000

Capital Surplus

$1,358,000

$3,476,000

$3,179,000

-$191,000

Retained Earnings

--

--

--

--

Treasury Stock

$12,412,000

$11,484,000

$9,965,000

$8,299,000

 

Other Equity

$231,000

$318,000

-$380,000

-$56,000

 

Total Equity

$14,004,000

$15,281,000

$12,767,000

$8,055,000

 

Total Liabilities & Equity

$37,531,000

$40,321,000

$37,740,000

$31,342,000

 

 

 

Cash flow statement

Period Ending:

5/31/2023

5/31/2022

5/31/2021

5/31/2020

Net Income

$5,070,000

$6,046,000

$5,727,000

$2,539,000

Cash Flows-Operating Activities

Depreciation

$859,000

$840,000

$797,000

$1,119,000

Net Income Adjustments

$425,000

-$38,000

$88,000

$72,000

Changes in Operating Activities

Accounts Receivable

$489,000

-$504,000

-$1,606,000

$1,239,000

Changes in Inventories

-$133,000

-$1,676,000

$507,000

-$1,854,000

Other Operating Activities

-$644,000

-$845,000

-$182,000

-$654,000

Liabilities

-$225,000

$1,365,000

$1,326,000

$24,000

Net Cash Flow-Operating

$5,841,000

$5,188,000

$6,657,000

$2,485,000

Cash Flows-Investing Activities

Capital Expenditures

-$969,000

-$758,000

-$695,000

-$1,086,000

Investments

$1,481,000

-$747,000

-$3,276,000

$27,000

Other Investing Activities

$52,000

-$19,000

$171,000

$31,000

Net Cash Flows-Investing

$564,000

-$1,524,000

-$3,800,000

-$1,028,000

Cash Flows-Financing Activities

Sale and Purchase of Stock

-$4,829,000

-$2,863,000

$564,000

-$2,182,000

Net Borrowings

-$500,000

--

-$197,000

$6,128,000

Other Financing Activities

-$102,000

-$151,000

-$136,000

-$52,000

Net Cash Flows-Financing

-$7,447,000

-$4,836,000

-$1,459,000

$2,491,000

Effect of Exchange Rate

-$91,000

-$143,000

$143,000

-$66,000

Net Cash Flow

-$1,133,000

-$1,315,000

$1,541,000

$3,882,000

 

Financial Ratios

Period Ending:

5/31/2023

5/31/2022

5/31/2021

5/31/2020

Liquidity Ratios

Current Ratio

272%

263%

272%

248%

Quick Ratio

181%

184%

201%

159%

Cash Ratio

115%

121%

139%

106%

Profitability Ratios

Gross Margin

44%

46%

45%

43%

Operating Margin

12%

14%

16%

8%

Pre-Tax Margin

12%

14%

15%

8%

Profit Margin

10%

13%

13%

7%

Pre-Tax ROE

44%

44%

52%

36%

After Tax ROE

36%

40%

45%

32%

 

 

 

 

 

For discussion: Which company is better?

 

 

 

Lets find it out by comparing stock performance between the two firms.

 

Nike Stock Performance (finance.yahoo.com)

 

 

 

 

What is your conclusion?

 

 

 

 ******* Part I: Balance Sheet and Income Statement **************

Home Depot (Ticker in the market: HD) reported the following information for the year ended January 30th, 2011 (expressed in millions).

Sales: $67,977

Cost of goods sold: $44,693

Marketing, general and administrative expenses: $15,885

Depreciation expenses: $1,616

Interest expense: $530

Tax rate: 36.70%

Number of shares outstanding: 1,623

Dividends paid to stockholders: $1,569.

Use the above information to try to prepare the income statement of Home Depot for the year ended January 30th, 2011 

 

Home Depot (Ticker in the market: HD) reported the following information for the year ended January 30th, 2011 (expressed in millions).

Cash: $545

Accounts receivables: $1,085

Inventories: $10625

Other current assets: $1,224

Gross fixed assets: $38,471

Accumulated depreciation: $13,411

Other fixed assets: $1,586

Accounts payable: $9,080

Short term notes payable: $1,042

Long term debt: $11,114

Total common stock: $3,894

Retained earnings: $14,995

Use the above information to try to prepare the balance sheet of Home Depot for the year ended January 30th, 2011

 

 

https://www.nasdaq.com/market-activity/stocks/gpro/financials

 

GoPro

 

Income Statement

Period Ending:

12/31/2022

12/31/2021

12/31/2020

12/31/2019

Total Revenue

$1,093,541

$1,161,084

$891,925

$1,194,651

Cost of Revenue

$686,713

$683,979

$577,411

$781,862

Gross Profit

$406,828

$477,105

$314,514

$412,789

Operating Expenses

Research and Development

$139,885

$141,494

$131,589

$142,894

Sales, General and Admin.

$227,988

$222,395

$219,744

$272,228

Non-Recurring Items

--

--

--

--

Other Operating Items

--

--

--

--

Operating Income

$38,955

$113,216

-$36,819

-$2,333

Add'l income/expense items

$1,740

-$176

-$4,881

$2,492

Earnings Before Interest and Tax

$40,695

$113,040

-$41,700

$159

Interest Expense

$6,242

$22,940

$20,257

$19,229

Earnings Before Tax

$34,453

$90,100

-$61,957

-$19,070

Income Tax

$5,606

-$281,071

$4,826

-$4,428

Minority Interest

--

--

--

--

Equity Earnings/Loss Unconsolidated Subsidiary

--

--

--

--

Net Income-Cont. Operations

$28,847

$371,171

-$66,783

-$14,642

Net Income

$28,847

$371,171

-$66,783

-$14,642

Net Income Applicable to Common Shareholders

$28,847

$371,171

-$66,783

-$14,642

 

Balance Sheet

Period Ending:

12/31/2022

12/31/2021

12/31/2020

12/31/2019

Current Assets

Cash and Cash Equivalents

$223,735

$401,087

$327,654

$150,301

Short-Term Investments

$143,602

$137,830

--

$14,847

Net Receivables

$77,008

$114,221

$107,244

$200,634

Inventory

$127,131

$86,409

$97,914

$144,236

Other Current Assets

$34,551

$42,311

$23,872

$25,958

Total Current Assets

$606,027

$781,858

$556,684

$535,976

Long-Term Assets

Long-Term Investments

--

--

--

--

Fixed Assets

$35,146

$46,323

$55,271

$89,660

Goodwill

$146,459

$146,459

$146,459

$146,459

Intangible Assets

--

--

$1,214

$5,247

Other Assets

$289,293

$285,239

$11,771

$15,461

Deferred Asset Charges

--

--

--

--

Total Assets

$1,076,925

$1,259,879

$771,399

$792,803

Current Liabilities

Accounts Payable

$210,525

$300,117

$225,175

$302,485

Short-Term Debt / Current Portion of Long-Term Debt

--

$122,391

--

--

Other Current Liabilities

$65,403

$52,324

$37,518

$24,566

Total Current Liabilities

$275,928

$474,832

$262,693

$327,051

Long-Term Debt

$141,017

$111,289

$218,172

$148,810

Other Liabilities

$48,421

$57,844

$74,516

$83,413

Deferred Liability Charges

--

--

--

--

Misc. Stocks

--

--

--

--

Minority Interest

--

--

--

--

Total Liabilities

$465,366

$643,965

$555,381

$559,274

Stock Holders Equity

Common Stocks

$960,903

$1,008,872

$980,147

$930,875

Capital Surplus

-$196,113

-$279,345

-$650,516

-$583,733

Retained Earnings

-$153,231

-$113,613

-$113,613

-$113,613

Treasury Stock

--

--

--

--

Other Equity

--

--

--

--

Total Equity

$611,559

$615,914

$216,018

$233,529

Total Liabilities & Equity

$1,076,925

$1,259,879

$771,399

$792,803

 

Cash Flow Statement

Period Ending:

12/31/2022

12/31/2021

12/31/2020

12/31/2019

Net Income

$28,847

$371,171

-$66,783

-$14,642

Cash Flows-Operating Activities

Depreciation

$8,570

$10,962

$19,065

$26,268

Net Income Adjustments

$48,452

-$214,299

$71,007

$51,752

Changes in Operating Activities

Accounts Receivable

$37,829

-$8,142

$93,084

-$71,269

Changes in Inventories

-$40,722

$11,505

$46,322

-$27,778

Other Operating Activities

$7,922

-$17,513

$6,392

$7,486

Liabilities

-$85,151

$75,469

-$75,305

$3,739

Net Cash Flow-Operating

$5,747

$229,153

$93,782

-$24,444

Cash Flows-Investing Activities

Capital Expenditures

-$3,447

-$5,545

-$4,881

-$8,348

Investments

-$4,941

-$138,174

$14,830

$31,119

Other Investing Activities

--

--

-$438

--

Net Cash Flows-Investing

-$8,388

-$143,719

$9,511

$22,771

Cash Flows-Financing Activities

Sale and Purchase of Stock

-$34,859

$7,490

$5,435

$5,574

Net Borrowings

-$125,000

--

$77,501

--

Other Financing Activities

-$13,410

-$17,379

-$6,207

-$6,618

Net Cash Flows-Financing

-$173,269

-$9,889

$71,977

-$1,044

Effect of Exchange Rate

-$1,442

-$2,112

$2,083

$923

Net Cash Flow

-$177,352

$73,433

$177,353

-$1,794

 

Financial Ratios

Period Ending:

12/31/2022

12/31/2021

12/31/2020

12/31/2019

Liquidity Ratios

Current Ratio

220%

165%

212%

164%

Quick Ratio

174%

146%

175%

120%

Cash Ratio

133%

113%

125%

50%

Profitability Ratios

Gross Margin

37%

41%

35%

35%

Operating Margin

4%

10%

0%

0%

Pre-Tax Margin

3%

8%

0%

0%

Profit Margin

3%

32%

0%

0%

Pre-Tax ROE

6%

15%

0%

0%

After Tax ROE

5%

60%

0%

0%

 

 

 

 

 

 

 

 

 

 

 

 

 

*

 

 

 

 

GoPro Stock performance ( finance.yahoo.com )

 

 

 

 

 

Balance Sheet Template

http://www.jufinance.com/10k/bs

 

Income Statement Template

http://www.jufinance.com/10k/is

 

 

Cash flow template

http://www.jufinance.com/10k/cf

 

 

Ratio Analysis (plus balance sheet, income statement)

https://www.jufinance.com/ratio

 

********* Part II: Cash Flow Statement ******************
Cash flow animation
 (video)

 

Here is the cash flow statement of home depot as of 2/2/2014.

 

In Millions of USD (except for per share items)

52 weeks ending 2014-02-02

Net Income/Starting Line

5,385.00

Depreciation/Depletion

1,757.00

Amortization

-

Deferred Taxes

-31

Non-Cash Items

228

Changes in Working Capital

289

Cash from Operating Activities

7,628.00

Capital Expenditures

-1,389.00

Other Investing Cash Flow Items, Total

-118

Cash from Investing Activities

-1,507.00

Financing Cash Flow Items

-37

Total Cash Dividends Paid

-2,243.00

Issuance (Retirement) of Stock, Net

-8,305.00

Issuance (Retirement) of Debt, Net

3,933.00

Cash from Financing Activities

-6,652.00

Foreign Exchange Effects

-34

Net Change in Cash

-565

Cash Interest Paid, Supplemental

639

Cash Taxes Paid, Supplemental

2,839.00

 

Discussion:

1.      What are the three components of cash flow statement?

2.      What does net change in cash mean?

 

 

image021.jpg

 

Now lets learn how to calculate cash changes in each session

Source of cash

  • Decrease in an Asset
    • Example: Selling inventories or collecting receivables provides cash
  • Increase in Liability or Equity
    • Example: Borrowing funds or selling stocks provides cash

Use of Cash

  • Increase in an Asset
    • Example: Investing in fixed assets or buying more inventories uses cash
    • Decrease in Liability or Equity
    • Example: Paying off a loan or buying back stock uses cash

 Cash Flow from Operations: Five Steps

1.      Add back depreciation.

2.      Subtract (add) any increase (decrease) in accounts receivable.

3.      Subtract (add) any increase (decrease) in inventory.

4.      Subtract (add) any increase (decrease) in other current assets.

5.      Add (subtract) any increase (decrease) in accounts payable and other accrued expenses

 

image021.jpg

 

Chapter 3 HW (due with the FIRST midterm exam)

 

Video for homework questions 3, 10, 11, 2, 6, 9, 7, 8 (9/12/2023 in class)

 

 

1.     Firm AAA just showed how it operated in the prior year.

Sales = $2,000; Cost of Goods Sold = $1,000; Depreciation Expense = $200; Administrative Expenses = $180; Interest Expense = $30; Marketing Expenses = $50; and Taxes = $200. Prepare income statement

2.     A firm has $2000 in current assets, $3000 in fixed assets, $300 in accounts receivables, $300 accounts payable, and $800 in cash. What is the amount of the inventory? (hint: 900)

3.     A firm has net working capital of $1000. Long-term debt is $5000, total assets are $8000, and fixed assets are $5000. What is the amount of the total equity? (Hint: to find total equity, you need to calculate total debt, which is a sum of long term debt and short term debt. Short term can be found from new working capital.) (hint: 1000)

4.     Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. What is the amount of tax paid? (hint: 7000)(hint: tax = taxable income * tax rate and taxable income = EBT)

5.     Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. The company also paid $3,000 for dividend. What is the retained earning?  (hint: retained earning = net income - dividend)(hint: 10,000)

6.     The Blue Bonnet's 2021 balance sheet showed net fixed assets of $2.2 million, and the 2022 balance sheet showed net fixed assets of $2.6 million. The company's income statement showed a depreciation expense of $1,000,000. What was the amount of the net capital spending for 2022? $1,400,000

7.     A firm has $500 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?  (760)

8.     A firm has net working capital of $640. Total liability is $5,860. Total assets are $6,230, and fixed assets are $3,910. What is the amount of long term debt?  (4180)

9.     Which one of the following is a use of cash? (answer: B)
A. decrease in accounts receivable
B. decrease in accounts payable
C. increase in common stock
D. decrease in inventory

10. A firm generated net income of $878. The depreciation expense was $40 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $20, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? (899)

11. Teddys Pillows has beginning net fixed assets of $480 and ending net fixed assets of $530. Assets valued at $300 were sold during the year. Depreciation was $40. What is the amount of capital spending? (90)

12. Arts Boutique has sales of $640,000 and costs of $480,000. Interest expense is $40,000 and depreciation is $60,000. The tax rate is 34%. What is the net income? (39,600)

 

 

 

 

image023.jpg

 

image024.jpg

 

 

 

 

Cash Flow Statement Answer

calculation for changes

Cash at the beginning of the year

2060