ADM 1340 Lecture Notes - Lecture 10: Accounts Payable, Deferral, Deferred Income

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harlequinbear906

14 Mar 2016

School

University of Ottawa

Department

Administration

Course

ADM 1340

Professor

Gerard Brathwaite- Sturgeon

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ADM 1340 Full Course Notes

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Document Summary

Bank indebtedness: short term loan from a bank. Accounts payable: amounts owed by the company to suppliers for purchase made on credit (account) Accrued liabiliies: amounts owed by the company for salaries, interest, rent, etc. Unearned revenue: cash received before revenue is earned. Notes payable: amounts owed to banks but also to suppliers or others, that are supported by a writen promise to repay. Current maturiies of long term debt: when a company has a long term loan, the porion of the payment that is due within the current year is classiied as current maturiies of long term debt. Bonds payable: used by large corporaions to borrow large sums of money. Mortgage payable: have property pledge as security for the loan. Lease obligaions: amounts to be paid in the future on long term rental contracts used for equipment or other property. Pension and beneit obligaions: amounts companies owe past and current employees for reirement beneits.

Related Questions

Please analyze the future of IBM with a company that does not have solid financials, such as Tesla. Qualitative measures will be required. What are tthe likelihoods of success and how could that be determined (for Tesla) if current numbers do not provide promise. Tesla is breaking into an emerging market of hybrid vehicle technology, and though the technology has not fully evovled, will it? How do Telsa's finaincial compare to IBM as they compare to success or failre?

Thank you

TESLA INC (TSLA) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	4046	7000
Cost of revenue	3123	5401
Gross profit	924	1599
Operating expenses
Research and development	718	834
Sales, General and administrative	922	1432
Total operating expenses	1640	2267
Operating income	-717	-667
Interest Expense	119	199
Other income (expense)	-40	120
Income before taxes	-876	-746
Provision for income taxes	13	27
Net income from continuing operations	-889	-773
Other		98
Net income	-889	-675
Net income available to common shareholders	-889	-675
Earnings per share
Basic	-6.93	-4.68
Diluted	-6.93	-4.68
Weighted average shares outstanding
Basic	128	144
Diluted	128	144
EBITDA	-334	400

TESLA INC (TSLA) 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	-889	-773
Depreciation & amortization	423	947
Amortization of debt discount/premium and issuance costs	72	87
Stock based compensation	198	334
Accounts receivable	46	-217
Inventory	-1574	-2466
Prepaid expenses	-30	57
Accounts payable
Accrued liabilities
Other working capital	1064	1932
Other non-cash items	165	-26
Net cash provided by operating activities	-524	-124
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-1635	-1440
Acquisitions, net	-12	214
Purchases of investments
Sales/Maturities of investments		17
Other investing activities	-26	-206
Net cash used for investing activities	-1674	-1416
Cash Flows From Financing Activities
Debt issued	319	2853
Debt repayment	-204	-1904
Warrant issued
Common stock issued	750	1702
Other financing activities	658	1094
Net cash provided by (used for) financing activities	1524	3744
Effect of exchange rate changes	-34	-7
Net change in cash	-709	2196
Cash at beginning of period	1906	1197
Cash at end of period	1197	3393
Free Cash Flow
Operating cash flow	-524	-124
Capital expenditure	-1635	-1440
Free cash flow	-2159	-1564

TESLA INC (TSLA) 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	1197	3393
Total cash	1197	3393
Receivables	169	499
Inventories	1278	2067
Prepaid expenses	125	194
Other current assets	23	106
Total current assets	2792	6260
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	5766	12920
Accumulated Depreciation	-571	-1018
Net property, plant and equipment	5195	15037
Intangible assets		376
Other long-term assets	106	991
Total non-current assets	5301	16404
Total assets	8092	22664
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt		1150
Capital leases	633
Accounts payable	916	1860
Taxes payable	101	153
Accrued liabilities	322	1005
Deferred revenues	707	1427
Other current liabilities	137	232
Total current liabilities	2816	5827
Non-current liabilities
Long-term debt	2082	118
Capital leases
Deferred taxes liabilities
Accrued liabilities		150
Deferred revenues	446	852
Minority interest		785
Other long-term liabilities	1659	10179
Total non-current liabilities	4187	12084
Total liabilities	7004	17911
Stockholders' equity
Common stock	0	0
Additional paid-in capital	3415	7774
Retained earnings	-2322	-2997
Accumulated other comprehensive income	-4	-24
Total stockholders' equity	1089	4753
Total liabilities and stockholders' equity	8092	22664


INTERNATIONAL BUSINESS MACHINES CORP (IBM) CashFlowFlag INCOME STATEMENT
Fiscal year ends in December. USD in millions except per share data.	2015-12	2016-12
Revenue	81741	79919
Cost of revenue	41057	41625
Gross profit	40684	38294
Operating expenses
Research and development	4565	4120
Sales, General and administrative	19894	20479
Other operating expenses	535	590
Total operating expenses	24994	25189
Operating income	15690	13105
Interest Expense	468	630
Other income (expense)	723	-145
Income before taxes	15945	12330
Provision for income taxes	2581	449
Net income from continuing operations	13364	11881
Net income from discontinuing ops	-174	-9
Net income	13190	11872
Net income available to common shareholders	13190	11872
Earnings per share
Basic	13.48	12.43
Diluted	13.42	12.38
Weighted average shares outstanding
Basic	979	955
Diluted	983	959
EBITDA	20268	17341

INTERNATIONAL BUSINESS MACHINES CORP (IBM) 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	13190	11872
Depreciation & amortization	3855	4381
Deferred income taxes	1387	-1132
Stock based compensation	468	544
Inventory	133	-14
Accounts payable	81	197
Accrued liabilities
Other working capital	-2658	1048
Other non-cash items	552	62
Net cash provided by operating activities	17008	16958
Cash Flows From Investing Activities
Investments in property, plant, and equipment	-3579	-3567
Property, plant, and equipment reductions	370	424
Acquisitions, net	-3750	-6133
Purchases of investments	-3073	-5917
Sales/Maturities of investments	2842	5692
Purchases of intangibles	-572	-583
Other investing activities	-397	-892
Net cash used for investing activities	-8159	-10976
Cash Flows From Financing Activities
Debt issued	5540	9132
Debt repayment	-5622	-6395
Common stock issued	322	204
Common stock repurchased	-4609	-3502
Dividend paid	-4897	-5256
Other financing activities	100	26
Net cash provided by (used for) financing activities	-9166	-5791
Effect of exchange rate changes
Net change in cash	-317	191
Cash at beginning of period	8476	7686
Cash at end of period	8159	7877
Free Cash Flow
Operating cash flow	17008	16958
Capital expenditure	-4151	-4150
Free cash flow	12857	12808

INTERNATIONAL BUSINESS MACHINES CORP (IBM) 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	7686	7826
Short-term investments	508	701
Total cash	8194	8527
Receivables	1201	1057
Inventories	1551	1553
Deferred income taxes
Prepaid expenses	4205	4564
Other current assets	27353	28187
Total current assets	42504	43888
Non-current assets
Property, plant and equipment
Gross property, plant and equipment	29341	60267
Accumulated Depreciation	-18616	-38606
Net property, plant and equipment	10725	21661
Equity and other investments	5187	4585
Goodwill	32021	36199
Intangible assets	3486	4689
Deferred income taxes	4822	5224
Prepaid pension benefit
Other long-term assets	11747	12055
Total non-current assets	67988	84413
Total assets	110492	128301
Liabilities and stockholders' equity
Liabilities
Current liabilities
Short-term debt	6461	7513
Accounts payable	6028	6209
Taxes payable	2847	3235
Accrued liabilities	7913	8282
Deferred revenues	11021	11035
Other current liabilities	-1	1
Total current liabilities	34269	36275
Non-current liabilities
Long-term debt	33428	34655
Deferred taxes liabilities
Accrued liabilities
Deferred revenues	3771	3600
Pensions and other benefits	16504	17070
Minority interest	162	146
Other long-term liabilities	8099	7478
Total non-current liabilities	61964	62949
Total liabilities	96233	99224
Stockholders' equity
Common stock	53262	53935
Retained earnings	146124	152759
Treasury stock	-155518	-159050
Accumulated other comprehensive income	-29606	-29398
Total stockholders' equity	14262	18246
Total liabilities and stockholders' equity	110495	117470

ivorypig770

PROBLEM 15-20 Ethics and the Manager (L015-2, L015-4] Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfin ished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be getting a loan to pay off his accounts payable-providing that on his most recent financial state- ments the current ratio was above 2.0, the acid-test ratio was above 1.0, and net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of his financial statements. Russ would like to apply for a $80,000 six-month loan bearing an interest rate of 10% per year. The unaudited financial reports of the company appear below: Venice InLine, Inc. Comparative Balance Sheet As of December 31 (dollars in thousands) This Year Last Year $ 70 $150 160 100 $482 Assets Current assets: Cash... Accounts receivable, net ............. Inventory ... Prepaid expenses .................. Total current assets ................... Property and equipment ............... Total assets ........ Liabilities and Stockholders' Equity Current liabilities: Accounts payable ... Accrued liabilities Total current liabilities ................. Long-term liabilities ................... Total liabilities... Stockholders' equity: Common stock and additional paid-in capital ..... Retained earnings .......... Total stockholders' equity .............. Total liabilities and stockholders' equity .... $154 10 164 100 100 296 396 $560 100 282 382 $482 Venice InLine, Inc. Income Statement For the Year Ended December 31 (dollars in thousands) This Year $420 290 130 Sales (all on account) .......... Cost of goods sold ....................... Gross margin ............ Selling and administrative expenses: Selling expenses Administrative expenses ........ Total selling and administrative expenses..... Net operating income...... Interest expense ........................ Net income before taxes ............. Income taxes (30%) ................... Net income 8181818181 Required: 1. Based on the unaudited financial statements and the statement made by the loan officer, would the company qualify for the loan? 2. Last year Russ purchased and installed new, more efficient equipment to replace an older plas- tic injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old machine be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the machine is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial statements. What advice would you give to Russ concerning the machine?

Business Decision Problem Crescent Paints, Inc., a paintmanufacturer, has been in business for

five years. The company has had modest profits and hasexperienced few operating difficulties

until this year, 2016, when president Alice Becknell discussedher companyâs working capital

problems with you, a loan officer at Granite Bank. Becknellexplained that expanding her firm has

created difficulties in meeting obligations when they come dueand in taking advantage of cash

discounts offered by manufacturers for the timely payment of thecompanyâs accounts payable.

She would like to borrow $50,000 from Granite Bank. At yourrequest, Becknell submits the fol-

lowing financial data for the past two years:

2016 2015

Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $2,000,000$1,750,000

Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 1,320,000 1,170,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 42,000 33,600

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 22,000 18,000

December 31, 2014, data. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1,100,000

Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 205,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 350,000

CRESCENT PAINTS, INC.

Balance Sheets

Dec. 31, 2016 Dec. 31, 2015

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $ 31,000 $ 50,000

Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 345,000 250,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 525,000 425,000

Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 11,000

6,000

Total Current Assets . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 912,000 731,000

Plant assets (net) . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 483,000 444,000

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . $1,395,000 $ 1,175,000

CRESCENT PAINTS, INC.

Balance Sheets

Dec. 31, 2016 Dec. 31, 2015

Liabilities and Stockholdersâ Equity

Notes payableâbanks. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . $ 100,000 $ 35,000

Accounts payable. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 244,000 190,000

Accrued liabilities . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 96,000

85,000

Total Current Liabilities. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 440,000 310,000

10% Mortgage payable . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 190,000

250,000

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 630,000 560,000

Common stock. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 665,000 535,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000

80,000

Total Stockholdersâ Equity . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 765,000 615,000

Total Liabilities and Stockholdersâ Equity . . . . . . . . . . .. . . . . . . . . $1,395,000 $1,175,000

Calculate the following items for both years from the given dataand then compare them with the

median ratios for paint manufacturers provided by a commercialcredit firm:

Median Ratios for

Paint Manufacturers

Current ratio . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 2.5

Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1.3

Accounts receivable turnover. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 8.1

Average collection period. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 44.9 days

Inventory turnover . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.9

Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 0.78

Return on assets . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.8%

Return on sales . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 2.4%

Calculate the following items for both years from the given dataand then compare them with the

median ratios for paint manufacturers provided by a commercialcredit firm:

ADM 1340 Lecture Notes - Lecture 10: Accounts Payable, Deferral, Deferred Income

ADM 1340 Full Course Notes

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