!!!

На мидтерме НЕ БУДЕТ вопросов построить финансовую отчетность (BS, IS, St of owner’s equity, cash
flow statement)

!!! Но будут вопросы по теории и задачи по финансовой отчетности (BS, IS, St of owner’s equity, cash
flow statement)

Balance Sheet
The balance sheet provides an overview of a company's assets, liabilities, and
shareholders' equity as a snapshot in time. The date at the top of the balance
sheet tells you when the snapshot was taken, which is generally the end of the
reporting period. Below is a breakdown of the items in a balance sheet.

Assets

 Cash and cash equivalents are liquid assets, which may include Treasury
bills and certificates of deposit.
 Accounts receivables are the amount of money owed to the company by
its customers for the sale of its product and service.
 Inventory is the goods a company has on hand, which are intended to be
sold as a course of business. Inventory may include finished goods, work
in progress that is not yet finished, or raw materials on hand that have yet
to be worked.
 Prepaid expenses are costs that have been paid in advance of when they
are due. These expenses are recorded as an asset because their value of
them has not yet been recognized; should the benefit not be recognized,
the company would theoretically be due a refund.
 Property, plant, and equipment are capital assets owned by a company for
its long-term benefit. This includes buildings used for manufacturing or
heavy machinery used for processing raw materials.
 Investments are assets held for speculative future growth. These aren't
used in operations; they are simply held for capital appreciation

Liabilities

 Accounts payable are the bills due as part of the normal course of
operations of a business. This includes utility bills, rent invoices, and
obligations to buy raw materials.
 Wages payable are payments due to staff for time worked.
 Notes payable are recorded debt instruments that record official debt
agreements including the payment schedule and amount.
 Dividends payable are dividends that have been declared to be awarded
to shareholders but have not yet been paid.
  Long-term debt can include a variety of obligations including sinking bond
funds, mortgages, or other loans that are due in their entirety in longer
than one year. Note that the short-term portion of this debt is recorded as
a current liability.

Shareholders' Equity

 Shareholders' equity is a company's total assets minus its total

liabilities. Shareholders' equity (also known as stockholders' equity)
represents the amount of money that would be returned to shareholders if
all of the assets were liquidated and all of the company's debt was paid
off.
 Retained earnings are part of shareholders' equity and are the amount
of net earnings that were not paid to shareholders as dividends.

Income Statement
Unlike the balance sheet, the income statement covers a range of time, which is
a year for annual financial statements and a quarter for quarterly financial
statements. The income statement provides an overview of revenues,
expenses, net income, and earnings per share.

Revenue
Operating revenue is the revenue earned by selling a company's products or
services. The operating revenue for an auto manufacturer would be realized
through the production and sale of autos. Operating revenue is generated from
the core business activities of a company.

Expenses
Primary expenses are incurred during the process of earning revenue from the
primary activity of the business. Expenses include the cost of goods
sold (COGS), selling, general and administrative expenses
(SG&A), depreciation or amortization, and research and development (R&D).

Cash Flow Statement

The cash flow statement (CFS) measures how well a company generates cash
to pay its debt obligations, fund its operating expenses, and fund
investments. The cash flow statement complements the balance
sheet and income statement.

The CFS allows investors to understand how a company's operations are

running, where its money is coming from, and how money is being spent. The
CFS also provides insight as to whether a company is on a solid financial
footing.

There is no formula, per se, for calculating a cash flow statement. Instead, it
contains three sections that report cash flow for the various activities for which a
company uses its cash. Those three components of the CFS are listed below.

Operating Activities
The operating activities on the CFS include any sources and uses of cash from
running the business and selling its products or services. Cash from operations
includes any changes made in cash accounts receivable, depreciation,
inventory, and accounts payable. These transactions also include wages,
income tax payments, interest payments, rent, and cash receipts from the sale
of a product or service.

Investing Activities
Investing activities include any sources and uses of cash from a company's
investments in the long-term future of the company. A purchase or sale of an
asset, loans made to vendors or received from customers, or any payments
related to a merger or acquisition is included in this category.

Financing Activities
Cash from financing activities includes the sources of cash from investors or
banks, as well as the uses of cash paid to shareholders. Financing activities
include debt issuance, equity issuance, stock repurchases, loans, dividends
paid, and repayments of debt.

Statement of Changes in Shareholder Equity

The statement of changes in equity tracks total equity over time. This
information ties back to a balance sheet for the same period; the ending balance
on the change of equity statement is equal to the total equity reported on the
balance sheet.

The formula for changes to shareholder equity will vary from company to
company; in general, there are a couple of components:

 Beginning equity: this is the equity at the end of the last period that simply
rolls to the start of the next period.
 (+) Net income: this is the amount of income the company earned in a
given period. The proceeds from operations are automatically recognized
as equity in the company, and this income is rolled into retained earnings
at year-end.
  (-) Dividends: this is the amount of money that is paid out to shareholders
from profits. Instead of keeping all of a company's profits, the company
may choose to give some profits away to investors.
 (+/-) Other comprehensive income: this is the period-over-period change
in other comprehensive income. Depending on transactions, this figure
may be an addition or subtraction from equity.

Midterm exam will cover the following topics.

1) calculate indirect method cash flow from operating activities from Net Income and adjustments:
increase/decrease in NWC (AR, AP, Inventory), Depreciation expense, etc

2) why cash is NOT net income? 3 reasons

3) net working capital (NWC)?

Current Assets – current Liabilities = NWC

4) Financial ratios:

o Short-term solvency, or liquidity, ratios:

 Current ratio calculation – is it good or bad, explain

• Long-term solvency, or financial leverage, ratios:

 Debt to equity ratio calculation – is it good or bad, explain

 Cash coverage ratio calculation – is it good or bad, explain

o Profitability ratios:
 Return on equity calculation – is it good or bad, explain

o Asset management, or turnover, ratios:

 Days inventory outstanding – is it good or bad, explain

  Days sales (AR) outstanding calculation (DSO) – is it good or bad, explain

 Days payables outstanding (DPO)– is it good or bad, explain

DPO = Average accounts payable / Cost of goods sold x 365

o Cash conversion cycle (кассовый разрыв) in days –is it good or bad, explain

!!! Cash conversion cycle (кассовый разрыв) calculation and exercise: https://agicap.com/en/article/cash-
conversion-cycle/

The cash conversion cycle, also known as the cash flow cycle, is a measure of the
time taken to convert a company’s investments in inventory into cash. In other
words, a cash cycle starts when a firm purchases inventory and ends when it
receives cash payments from its sales. It is expressed in terms of the number of
days.
5) From Net income to EBIT calculation

6) Apply the percentage of sales method (chapter 4: Long-term financial planning and growth)

7) Compute the external financing needed to fund a firm’s growth (chapter 4: Long-term financial planning
and growth)

8) Statement of cash flows:

• Operating activities:

• Investment activities

• Financing activities

The cash flow statement (CFS), is a financial statement that summarizes the
movement of cash and cash equivalents (CCE) that come in and go out of a
company. The operating activities on the CFS include any sources and uses of
cash from business activities. In other words, it reflects how much cash is
generated from a company’s products or services.

These operating activities might include:

 Receipts from sales of goods and services

 Interest payments
 Income tax payments
 Payments made to suppliers of goods and services used in production
 Salary and wage payments to employees
 Rent payments
 Any other type of operating expenses
Investing activities include any sources and uses of cash from a company’s
investments. Purchases or sales of assets, loans made to vendors or received
from customers, or any payments related to mergers and acquisitions (M&A)are
included in this category. In short, changes in equipment, assets, or investments
relate to cash from investing. Cash from financing activities includes the sources
of cash from investors and banks, as well as the way cash is paid to
shareholders. This includes any dividends, payments for stock repurchases, and
repayment of debt principal (loans) that are made by the company.
9) what is Standardized Financial Statements?

10) Calculation and theory: financial statements: Balance sheet, Income statement, statement of owners
equity, cash flow statement

11) costs: production and non production, variable and fixed

Total costs that change in direct proportion to changes in productive output (or any other measure of volume) are called
variable costs. They are referred to as unit-level activities, since the cost is incurred each time a unit is produced or a
service is delivered. For example, direct materials, direct labor, operating supplies, and gasoline are variable costs.
Variable cost can be computed using the following variable cost formula: Total Variable Cost = Variable Rate x Units
Produced

Fixed costs, referred to as facility-level activities, are total costs that remain constant within a relevant range of volume
or activity. Relevant range is the span of activity in which a company expects to operate. Within the relevant range, it is
assumed that both total fixed costs and per unit variable costs are constant. Total Fixed Cost = Fixed Cost in Relevant
Range