Temarios

ASSESSING THE FINANCIAL HEALTH OF THE FIRM

Sessions 1 and 2

IMBA Prof..Martín Berzal

THE CASH FLOW- PRODUCTION CYCLE
Changes in Equity Changes in Liabilities Taxes Interest Dividends CASH ACCOUNTS RECEIVABLE
PRODUCTION INVESTMENT COLLECTION OF RECEIVABLES CREDIT SALES
CASH SALES

INVENTORY FIXED ASSETS

DEPRECIATION

Source: Robert C. Higgins, Analysis for financial ManagementIMBA Prof..Martín Berzal

1

FINANCIAL PLANNING AND GROWTH
ASSESSING THE CURRENT FINANCIAL HEALTH OF THE FIRM
Interpreting financial statements Evaluating Financial Performance

ASSESSING THE FUTURE FINANCIAL HEALTH OF THE FIRM
Financial Forecasting Managing Growth

IMBA Prof..Martín Berzal

Interpreting Financial Statements

IMBA Prof..Martín Berzal

2

INTERPRETING FINANCIALSTATEMENTS
ACCOUNTING BALANCE SHEET Assets Cash Accounts Receivable
L& Shareholders’ Equity

FINANCIAL BALANCE SHEET Assets Investing
L& Shareholders’ Equity

Accounts Payable
Short Term Debt Long Term Debt

Financing Short Debt + Long Debt Excess of Cash

Inventories Net Fixed Assets

Working Capital Requirement
(WCR)

Net Debt

Equity

Net Fixed Assets

Equity

Cash =Operating Cash+ Excess of cash Net Debt = Short Term Debt +Long Term Debt –Excess of Cash
IMBA Prof..Martín Berzal

Working Capital = Cash + Acc Rec + Inv - Acc Pay - ST Liabilities WCR = Operating Cash + AR + Inv - AP

WORKING CAPITAL REQUIREMENTS VS WORKING CAPITAL We can calculate net working capital in two different ways:
Current Assets - Current Liabilities Long term debt + Shareholder’sequity- Fixed Assets

Working Capital Requirements (WCR) is equal to current operating assets minus current operating liabilities WCR only includes the current assets and liabilities that are a result of the company operations and does not include the financing decisions even if they are short term decisions
If WC> WCR, then WC-WCR = EC (Excess of cash) If WC assets = no investment cash + mktsecurities = total cash Net income = dividends OR retained earnings

4

Equity = Eq1 = Eq0 + retained earnings + issue of shares - shares repurchased Acc Pay = cheaper way to finance than bank, but you can't push it too far, it is not sustainable, for it lowers your netotiation power with suppliers

TABLE 1-2 Harley-Davidson, Inc. (Continued)

Liabilities and Shareholders' EquityLong-term debt due in one year Accounts payable Income taxes payable Accrued expenses Other current liabilities Total current liabilities Long-term debt Postretirement healthcare benefits Deferred income taxes Other long-term liabilities Total liabilities Common stock Additional paid-in capital Retained earnings Less treasury stock Total shareholders' equity Total liabilities and shareholders' equity

$324.3 223.9 54.8 197.2 155.6 955.8 670.0 127.4 125.8 86.3 1,965.3 3.3 419.5 3,121.2 (586.2) 2,957.8

$

495.4 244.2 53.5 197.1 182.4 1,172.6 800.0 149.8 51.4 90.8 2,264.6 3.3 533.1 3,832.5 (1,150.4) 3,218.5

171.1 20.3 (1.3) (0.1) 26.8 130.0 22.4 (74.4) 4.5

260.7

$ 4,923.1

$ 5,483.1

IMBA Prof..Martín Berzal

TABLE 1-3 Harley-Davidson, Inc. Income Statement ($ millions)December 31 2003 Net sales Cost of goods sold Gross profit Selling, general and engineering expenses Depreciation Total operating expenses Operating income Interest expense Other non-operating income Total nonoperating expenses Income before income taxes Provision for income taxes Net income $
IMBA Prof..Martín Berzal

2004 $ 5,320.5 2,995.5 2,325.0 726.6 214.1 940.7 1,384.3 22.7 18.0 4.7 1,379.6489.7 $ 889.9

$ 4,903.7 2,855.7 2,048.0 684.2 196.9 881.1 1,166.9 21.5 20.7 0.8 1,166.1 405.1 761.0

5

TABLE 1-4 Harley-Davidson, Inc. Sources and Uses Statement, 2004 ($ millions)

Sources Reduction in cash Reduction in net property, plant and equipment Reduction in other assets Increase in long-term debt due in one year Increase in notes payable Increase in other current liabilities...