FIN 3310 Lecture Notes - Lecture 1: Current Liability, Promissory Note, Cash Flow
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Document Summary
Current assets = net working capital + current liabilities. Net working capital = current assets - current liability. Market value: value difference between the market and the assets. Sources and uses of cash: cash inflow. Occurs when we sell something: decreases in asset account. Accounts receivable, inventory, and net fixed assets. Account payable, other current liabilities, and common stock. Uses: cash outflow - occurs when we buy something. Cash and other current assets: decrease in liability or equity account. Cash flow from assets (cffa) = cash flow to creditors + cash flow to stockholders. Cash flow from assets = operating cash flow - net capital spending - changes in nwc. Changes divided into three major categories: operating activity - includes net income and changes in most current accounts. Investment activity - includes changes in fixed assets: financing activity - includes changes in notes payable, long term debt and equity accounts, as well as dividends. Standardized financial statements: common-size balance sheets.
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Change in net working capital calculationâââSamuels Manufacturing is considering the purchase of a new machine to replace one it believes is obsolete. The firm has total current assets of $930,000 and total current liabilities of $644,000.
As a result of the proposedâ replacement, the following changes are anticipated in the levels of the current asset and current liability accounts noted.
| Account | Change |
| Accruals | +$43,000 |
| Marketable securities | 0 |
| Inventories | -11,000 |
| Accounts payable | +86,000 |
| Notes payable | 0 |
| Accounts receivable | +148,000 |
| Cash | +12,000 |
a. Using the informationâ given, calculate any change in net working capital that is expected to result from the proposed replacement action.
b. Explain why a change in these current accounts would be relevant in determining the initial investment for the proposed capital expenditure.
c. Would the change in net working capital enter into any of the other cash flow components that make up the relevant cashâ flows? Explain.
Compare Companies --- Netflix (NFLX) vs. GEO Holdings (TOK) Compute financial ratios, time value, variables, and returns using industry standard tools for optimizing financial success. Analyze corporate financial data in evaluating past and future financial performances.
Use formulas to calculate the following financial indicators for each year of data: Three fiscal years for Netflix and GEO Holdings for:
o Price to earnings ratio
o Debt to equity ratio
o Free cash flow
o Earnings per share
o Return on equity
o Net profit margin
V. Performance Over Time
A. Analyze the performance of the Netflix over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.
B. Analyze the performance of your GEO Holdings over time. What financial strengths and weaknesses does this company have? Consider addressing the free cash flows and ratios you calculated earlier.
C. Analyze how the data differ between these two companies. Why do you think this is? Consider addressing the free cash flows and ratios you calculated earlier.
VI. Investment
A. Are the companies considered growth or value companies? Why?
B. Which companyâs stock is the better investment?
| Netflix Inc. (NMS: NFLX) | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Balance Sheet | |||||
| Report Date | 12/31/2016 | 12/31/2015 | 12/31/2014 | ||
| Currency | USD | USD | USD | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Thousands | Thousands | Thousands | ||
| Cash & cash equivalents | 1467576 | 1809330 | 1113608 | ||
| Short-term investments | 266206 | 501385 | 494888 | ||
| Current content library, net | - | - | 2125702 | ||
| Current content assets, net | 3726307 | 2905998 | - | ||
| Other current assets | 260202 | 215127 | 206271 | ||
| Total current assets | 5720291 | 5431840 | 3940469 | ||
| Non-current content library, net | - | - | 2773326 | ||
| Non-current content assets, net | 7274501 | 4312817 | - | ||
| Information technology assets | 185345 | 194054 | 189274 | ||
| Furniture & fixtures | 32185 | 30914 | 25758 | ||
| Building | 40681 | 40681 | 40681 | ||
| Leasehold improvements | 107945 | 107793 | 57339 | ||
| DVD operations equipment | 70152 | 88471 | 89144 | ||
| Capital work-in-progress | 108296 | 8845 | 12495 | ||
| Property & equipment, gross | 544604 | 470758 | 414691 | ||
| Less: accumulated depreciation | 294209 | 297346 | 264816 | ||
| Property & equipment, net | 250395 | 173412 | 149875 | ||
| Other non-current assets | 341423 | 284802 | 192981 | ||
| Total assets | 13586610 | 10202871 | 7056651 | ||
| Current content liabilities | 3632711 | 2789023 | 2117241 | ||
| Accounts payable | 312842 | 253491 | 201581 | ||
| Accrued expenses | 197632 | 140389 | 69746 | ||
| Deferred revenue | 443472 | 346721 | 274586 | ||
| Total current liabilities | 4586657 | 3529624 | 2663154 | ||
| Non-current content liabilities | 2894654 | 2026360 | 1575832 | ||
| Long-term debt | 3364311 | 2371362 | 900000 | ||
| Other non-current liabilities | 61188 | 52099 | 59957 | ||
| Total liabilities | 10906810 | 7979445 | 5198943 | ||
| Common stock | 1599762 | 1324809 | 60 | ||
| Additional paid-in capital | - | - | 1042810 | ||
| Foreign currency | -47966 | -42502 | -4615 | ||
| Change in unrealized gains on available for sale securities | -599 | -806 | 169 | ||
| Accumulated other comprehensive income (loss) | -48565 | -43308 | -4446 | ||
| Retained earnings (accumulated deficit) | 1128603 | 941925 | 819284 | ||
| Total stockholders' equity (deficiency) | 2679800 | 2223426 | 1857708 |
| Geo Holdings Corp (TOK: 2681) | |||||
| Due to changes with International Financial Reporting Standards (IFRS), recent financials statement presentations have been adjusted to meet this standard. Please note the original historical presentations have remained in the original format | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Balance Sheet | |||||
| Report Date | 03/31/2016 | 03/31/2015 | 03/31/2014 | ||
| Currency | JPY | JPY | JPY | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Millions | Millions | Thousands | ||
| Cash & deposits | 37683 | 32052 | 19869000 | ||
| Trade notes & accounts receivables | 4100 | 4077 | 3992000 | ||
| Merchandise | 24894 | 23834 | 23495000 | ||
| Deferred tax assets | 2156 | 1806 | 1773000 | ||
| Other current assets | 5462 | 7181 | 5942000 | ||
| Allowance for doubtful accounts | -281 | -292 | 343000 | ||
| Total current assets | 74015 | 68659 | 54729000 | ||
| Asset for rent, gross | 100974 | 104514 | 104647000 | ||
| Accumulated depreciation - asset for rent | -95154 | -97475 | 96055000 | ||
| Asset for rent, net | 5820 | 7038 | 8591000 | ||
| Buildings & structures, gross | 40872 | 39984 | 39478000 | ||
| Accumulated depreciation - buildings & structures | -27470 | -26362 | 25976000 | ||
| Buildings & structures, net | 13402 | 13622 | 13501000 | ||
| Land, net | 5844 | 6356 | 6651000 | ||
| Leased assets, gross | 2176 | 3519 | 4576000 | ||
| Accumulated depreciation - leased assets | -681 | -1764 | 2588000 | ||
| Leased assets, net | 1495 | 1754 | 1988000 | ||
| Other property, plant & equipment, gross | 24838 | 20562 | 17708000 | ||
| Accumulated depreciation - other property, plant & equipment | -18391 | -15292 | 13236000 | ||
| Other property, plant & equipment, net | 6447 | 5270 | 4471000 | ||
| Total property, plant & equipment | 33010 | 34043 | 35205000 | ||
| Total intangible assets | 1865 | 1277 | 2028000 | ||
| Investment securities | 926 | 1002 | 1266000 | ||
| Long-term loans receivable | 2250 | 6682 | 6628000 | ||
| Lease & guarantee deposits | 14905 | 14735 | 15034000 | ||
| Deferred tax assets | 3342 | 3774 | 2845000 | ||
| Other investments & other assets | 1222 | 1188 | 1760000 | ||
| Allowance for doubtful accounts | -1332 | -3751 | 3917000 | ||
| Total investments & other assets | 21315 | 23632 | 23617000 | ||
| Total non-current assets | 56192 | 58952 | 60851000 | ||
| Total assets | 130207 | 127612 | 115581000 | ||
| Trade accounts payable | 12631 | 13540 | 13124000 | ||
| Current portion of long-term borrowings | 8333 | 7097 | 8754000 | ||
| Current portion of bonds | 149 | 149 | 249000 | ||
| Income taxes payable | 4815 | 265 | 1170000 | ||
| Reserve for bonuses | 1665 | 1420 | 1135000 | ||
| Other current liabilities | 10135 | 12595 | 10279000 | ||
| Total current liabilities | 37731 | 35068 | 34713000 | ||
| Bonds | 105 | 254 | 403000 | ||
| Long-term borrowings | 19509 | 21843 | 13910000 | ||
| Lease liabilities | 1612 | 1660 | 1590000 | ||
| Deferred tax liabilities | 23 | 22 | 26000 | ||
| Asset retirement obligations | 4406 | 3994 | 3898000 | ||
| Other non-current liabilities | 1857 | 1554 | 1839000 | ||
| Total non-current liabilities | 27514 | 29329 | 21668000 | ||
| Total liabilities | 65246 | 64398 | 56381000 | ||
| Capital stock | 8871 | 8615 | 8603000 | ||
| Capital surplus | 3283 | 6090 | 6078000 | ||
| Retained earnings | 52542 | 49998 | 44381000 | ||
| Treasury shares | - | -1979 | 334000 | ||
| Total shareholders' equity | 64697 | 62724 | 58729000 | ||
| Valuation difference on available-for-sale securities | 166 | 282 | 297000 | ||
| Loss (gain) on deferred hedge | -15 | - | 297000 | ||
| Total accumulated other comprehensive income | 150 | 282 | 172000 | ||
| Stock acquisition rights | 113 | 206 | 59199000 | ||
| Net assets | 64961 | 63214 | 115581000 | ||
| Total liabilities & net assets | 130207 | 127612 |
| Netflix Inc. (NMS: NFLX) | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Income Statement | |||||
| Report Date | 12/31/2016 | 12/31/2015 | 12/31/2014 | ||
| Currency | USD | USD | USD | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Thousands | Thousands | Thousands | ||
| Revenues | 8830669 | 6779511 | 5504656 | ||
| Cost of revenues | 6029901 | 4591476 | 3752760 | ||
| Marketing expenses | 991078 | 824092 | 607186 | ||
| Technology & development expenses | 852098 | 650788 | 472321 | ||
| General & administrative expenses | 577799 | 407329 | 269741 | ||
| Operating income (loss) | 379793 | 305826 | 402648 | ||
| Interest expense | 150114 | 132716 | 50219 | ||
| Interest & other income (expense) | 30828 | -31225 | -3060 | ||
| Income before income taxes - United States | 188078 | 95644 | 325081 | ||
| Income (loss) before income taxes - foreign | 72429 | 46241 | 24288 | ||
| Income (loss) before income taxes | 260507 | 141885 | 349369 | ||
| Current tax provision (benefit) - federal | 54315 | 52557 | 86623 | ||
| Current tax provision (benefit) - state | 5790 | -1576 | 9866 | ||
| Current tax provision (benefit) - foreign | 60571 | 26918 | 16144 | ||
| Total current tax provision (benefit) | 120676 | 77899 | 112633 | ||
| Deferred tax provision (benefit) - federal | -24383 | -37669 | -10994 | ||
| Deferred tax provision (benefit) - state | -14080 | -17635 | -17794 | ||
| Deferred tax provision (benefit) - foreign | -8384 | -3351 | -1275 | ||
| Total deferred tax provision (benefit) | -46847 | -58655 | -30063 | ||
| Provision for (benefit from) income taxes | 73829 | 19244 | 82570 | ||
| Net income (loss) | 186678 | 122641 | 266799 | ||
| Weighted average shares outstanding - basic | 428822 | 425889 | 420546 | ||
| Weighted average shares outstanding - diluted | 438652 | 436456 | 431893 | ||
| Year end shares outstanding | 430054.212 | 427940.44 | 422910.887 | ||
| Net income (loss) per share - basic | 0.44 | 0.29 | 0.634 | ||
| Net income (loss) per share - diluted | 0.43 | 0.28 | 0.617 | ||
| Number of full time employees | 4500 | 3500 | 2189 | ||
| Number of part time & temporary employees | 200 | 400 | 261 | ||
| Total number of employees | 4700 | 3700 | 2450 | ||
| Number of common stockholders | 290 | 237 | 203 | ||
| Foreign currency translation adjustments | -5464 | -37887 | - | ||
| Geo Holdings Corp (TOK: 2681) | |||||
| Exchange rate used is that of the Year End reported date | |||||
| As Reported Annual Income Statement | |||||
| Report Date | 03/31/2016 | 03/31/2015 | 03/31/2014 | ||
| Currency | JPY | JPY | JPY | ||
| Audit Status | Not Qualified | Not Qualified | Not Qualified | ||
| Consolidated | Yes | Yes | Yes | ||
| Scale | Millions | Millions | Thousands | ||
| Total revenue | 267910 | 270308 | 262324000 | ||
| Cost of sales | -151798 | -157825 | 152301000 | ||
| Gross profit | 116112 | 112483 | 110022000 | ||
| Selling, general & administrative expenses | -99559 | -102925 | 100823000 | ||
| Operating income | 16552 | 9558 | 9198000 | ||
| Interest & dividend income | 49 | 114 | 111000 | ||
| Rental income | 1268 | 1167 | 1193000 | ||
| Other non-operating income | 1043 | 1062 | 453000 | ||
| Total non-operating income | 2361 | 2343 | 1758000 | ||
| Interest expense | -230 | -231 | 332000 | ||
| Rental expenses | -759 | -609 | 595000 | ||
| Transfer to reserve for doubtful account | - | -227 | - | ||
| Other non-operating expenses | -100 | -803 | - | ||
| Total non-operating expenses | -1089 | -1871 | 684000 | ||
| Ordinary income | 17824 | 10030 | 1612000 | ||
| Imapirment loss | -1319 | -1543 | 9344000 | ||
| Other extraordinary losses | -13 | - | 203000 | ||
| Total extraordinary losses | -1333 | -1543 | 203000 | ||
| Income before income taxes | 16491 | 8486 | 1218000 | ||
| Income taxes - current | -5779 | -2074 | 514000 | ||
| Income taxes - deferred | -147 | 925 | 87000 | ||
| Total income taxes | -5927 | -1149 | 1821000 | ||
| Profit | 10563 | 7337 | 7726000 | ||
| Profit attributable to owners of parent | 10563 | 7337 | 4027000 | ||
| Average number of shares outstanding - basic | 51.331 | 53.169 | -39000 | ||
| Average number of shares outstanding - diluted | 51.623 | 53.29 | 3987000 | ||
| Year end shares outstanding | 48.244 | 52.295 | 3738000 | ||
| Earnings per share - basic | 205.78 | 137.99 | -70000 | ||
| Earnings per share - diluted | 204.62 | 137.68 | 3808000 | ||
| Number of full time employees | 3825 | 3579 | 53996.5 | ||
| Number of part time employees | 10421 | 10114 | 54066.499 | ||
| Number of common stockholders | 57105 | 65030 | 53996.5 | ||
What are the Market Value Leverage Ratios (Value of Debt to Value of Equity, Value of Debt to Value of Assets)) for the following 2015 and 2016 financial data? (PLEASE SHOW WORK SO I CAN UNDERSTAND HOW THIS WAS DONE. Thank you)
| AMAZON.COM INC (AMZN) CashFlowFlag INCOME STATEMENT | ||
| Fiscal year ends in December. USD in millions except per share data. | 2015-12 | 2016-12 |
| Revenue | 107006 | 135987 |
| Cost of revenue | 71651 | 88265 |
| Gross profit | 35355 | 47722 |
| Operating expenses | ||
| Sales, General and administrative | 20411 | 27284 |
| Other operating expenses | 12711 | 16252 |
| Total operating expenses | 33122 | 43536 |
| Operating income | 2233 | 4186 |
| Interest Expense | 459 | 484 |
| Other income (expense) | -206 | 190 |
| Income before income taxes | 1568 | 3892 |
| Provision for income taxes | 950 | 1425 |
| Other income | -22 | -96 |
| Net income from continuing operations | 596 | 2371 |
| Net income | 596 | 2371 |
| Net income available to common shareholders | 596 | 2371 |
| Earnings per share | ||
| Basic | 1.28 | 5.01 |
| Diluted | 1.25 | 4.9 |
| Weighted average shares outstanding | ||
| Basic | 467 | 474 |
| Diluted | 477 | 484 |
| EBITDA | 8308 | 12492 |
| AMAZON.COM INC (AMZN) CashFlowFlag BALANCE SHEET | ||
| Fiscal year ends in December. USD in millions except per share data. | 2015-12 | 2016-12 |
| Assets | ||
| Current assets | ||
| Cash | ||
| Cash and cash equivalents | 15890 | 19334 |
| Short-term investments | 3918 | 6647 |
| Total cash | 19808 | 25981 |
| Receivables | 6423 | 8339 |
| Inventories | 10243 | 11461 |
| Deferred income taxes | ||
| Total current assets | 36474 | 45781 |
| Non-current assets | ||
| Property, plant and equipment | ||
| Land | 9770 | 13998 |
| Fixtures and equipment | 18417 | 25989 |
| Other properties | 1866 | 2454 |
| Property and equipment, at cost | 30053 | 42441 |
| Accumulated Depreciation | -8215 | -13327 |
| Property, plant and equipment, net | 21838 | 29114 |
| Goodwill | 3759 | 3784 |
| Intangible assets | ||
| Deferred income taxes | 1084 | |
| Other long-term assets | 2289 | 4723 |
| Total non-current assets | 28970 | 37621 |
| Total assets | 65444 | 83402 |
| Liabilities and stockholders' equity | ||
| Liabilities | ||
| Current liabilities | ||
| Accounts payable | 20397 | 25309 |
| Accrued liabilities | 10384 | 13739 |
| Deferred revenues | 3118 | 4768 |
| Total current liabilities | 33899 | 43816 |
| Non-current liabilities | ||
| Long-term debt | 8235 | 7694 |
| Capital leases | 5948 | 7519 |
| Deferred taxes liabilities | 392 | |
| Other long-term liabilities | 3978 | 4696 |
| Total non-current liabilities | 18161 | 20301 |
| Total liabilities | 52060 | 64117 |
| Stockholders' equity | ||
| Common stock | 5 | 5 |
| Additional paid-in capital | 13394 | 17186 |
| Retained earnings | 2545 | 4916 |
| Treasury stock | -1837 | -1837 |
| Accumulated other comprehensive income | -723 | -985 |
| Total stockholders' equity | 13384 | 19285 |
| Total liabilities and stockholders' equity | 65444 | 83402 |
| AMAZON.COM INC (AMZN) Statement of CASH FLOW | ||
| Fiscal year ends in December. USD in millions except per share data. | 2015-12 | 2016-12 |
| Cash Flows From Operating Activities | ||
| Net income | 596 | 2371 |
| Depreciation & amortization | 6281 | 8116 |
| Investments losses (gains) | 5 | |
| Deferred income taxes | 81 | -246 |
| Stock based compensation | 2119 | 2975 |
| Accounts receivable | -1755 | -3367 |
| Inventory | -2187 | -1426 |
| Accounts payable | 4294 | 5030 |
| Accrued liabilities | 913 | 1724 |
| Other working capital | 1292 | 1955 |
| Other non-cash items | 281 | -689 |
| Net cash provided by operating activities | 11920 | 16443 |
| Cash Flows From Investing Activities | ||
| Investments in property, plant, and equipment | -4589 | -6737 |
| Acquisitions, net | -795 | -116 |
| Purchases of investments | -4091 | -7756 |
| Sales/Maturities of investments | 3025 | 4733 |
| Net cash used for investing activities | -6450 | -9876 |
| Cash Flows From Financing Activities | ||
| Long-term debt issued | 353 | 621 |
| Long-term debt repayment | -4235 | -4361 |
| Excess tax benefit from stock based compensation | 119 | 829 |
| Repurchases of treasury stock | ||
| Net cash provided by (used for) financing activities | -3763 | -2911 |
| Effect of exchange rate changes | -374 | -212 |
| Net change in cash | 1333 | 3444 |
| Cash at beginning of period | 14557 | 15890 |
| Cash at end of period | 15890 | 19334 |
| Free Cash Flow | ||
| Operating cash flow | 11920 | 16443 |
| Capital expenditure | -4589 | -6737 |
| Free cash flow | 7331 | 9706 |
| Supplemental schedule of cash flow data | ||
| Cash paid for income taxes | 273 | 412 |
| Cash paid for interest | 478 | 496 |
