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FINA 2201 Chapter Notes - Chapter 3: Retained Earnings, Accounts Payable, Income Statement

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lilacmule890
14 Mar 2016
School
Northeastern University
Department
Finance & Insurance
Course
FINA 2201
Professor
Sidi Boubker Drissi Messouak

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Document Summary

Annual report includes verbal section describing operating results: balance sheet, income statement, statement of cash flows, statement of stockholder"s equity. Financial statements report what actually happened to its assets earnings and dividends. Verbal statements attempt to explain why things happened and what might happen in the future (cid:1) (cid:1) (cid:1) (cid:1) A snapshot of a firm"s position at a specific point in time. Stockholder"s equity: the amount stockholders paid to the company when they bought shares the company sold to raise capital, also includes retained earnings. Retained earnings cumulative total of all the earnings the company has earned during its life: se can also be thought of as residual. Total assets total liabilities: how managers manage their retained earnings will have a direct effect on the stock price (cid:1) Current assets that are used throughout the year to generate cash. Separates interest bearing liabilities from non-interesting bearing liabilities: current assets (current liabilities notes payable)

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Related Questions

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 5,500
Cost of goods sold 4,950
EBIT $ 550
Interest 110
Earnings before taxes $ 440
State and federal tax 176
Net income $ 264
Dividends 176
Additions to retained earnings $ 88
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 550
Fixed assets 2,200
Total assets $ 2,750
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,650
Total liabilities and shareholders' equity $ 2,750

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 6,050
Cost of goods sold 5,445
EBIT $ 605
Interest 110
Earnings before taxes $ 495
State and federal tax 198
Net income $ 297
Dividends 198
Additions to retained earnings $ 99
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,100
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 2,849
Required external financing $ 176
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 605
Fixed assets 2,420
Total assets $ 3,025
Liabilities and shareholders' equity
Long-term debt $ 1,276
Shareholders' equity 1,749
Total liabilities and shareholders' equity $ 3,025

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 4,000
Cost of goods sold 3,600
EBIT $ 400
Interest 80
Earnings before taxes $ 320
State and federal tax 128
Net income $ 192
Dividends 128
Additions to retained earnings $ 64
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 400
Fixed assets 1,600
Total assets $ 2,000
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,200
Total liabilities and shareholders' equity $ 2,000

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 4,400
Cost of goods sold 3,960
EBIT $ 440
Interest 80
Earnings before taxes $ 360
State and federal tax 144
Net income $ 216
Dividends 144
Additions to retained earnings $ 72
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,072
Required external financing $ 128
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 928
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,200

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $

The following is the financial statement of Executive Fruit Company for the year ended December 2014.
INCOME STATEMENT, 2014
(Figures in $ Thousands)
Revenue $ 4,000
Cost of goods sold 3,600
EBIT $ 400
Interest 80
Earnings before taxes $ 320
State and federal tax 128
Net income $ 192
Dividends 128
Additions to retained earnings $ 64
BALANCE SHEET (Year-End, 2014)
(Figures in $ Thousands)
Assets
Net working capital $ 400
Fixed assets 1,600
Total assets $ 2,000
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,200
Total liabilities and shareholders' equity $ 2,000

The following are the first stage and second stage pro forma financial statements of Executive Fruit Company for the year ended December 2015.
First stage pro forma statements:
PRO FORMA INCOME STATEMENT, 2015
(Figures in $ Thousands)
Revenue $ 4,400
Cost of goods sold 3,960
EBIT $ 440
Interest 80
Earnings before taxes $ 360
State and federal tax 144
Net income $ 216
Dividends 144
Additions to retained earnings $ 72
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 800
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,072
Required external financing $ 128
Second stage pro forma balance sheet:
PRO FORMA BALANCE SHEET (Year-End, 2015)
(Figures in $ Thousands)
Assets
Net working capital $ 440
Fixed assets 1,760
Total assets $ 2,200
Liabilities and shareholders' equity
Long-term debt $ 928
Shareholders' equity 1,272
Total liabilities and shareholders' equity $ 2,200

How would Executive Fruit’s financial model change if the dividend payout ratio were cut to 1/3? Use the revised model to generate a new financial plan for 2015 assuming that debt is the balancing item. What would be the required external financing? (Do not round intermediate calculations.)

Dividends fall by $ . Therefore, the requirement for external financing falls from $ to $ . On the other hand, shareholders' equity will be increased by $ .

The right-hand side of the balance sheet becomes (Do not round intermediate calculations. Enter your answers in thousands.):
Long-term debt $
Shareholders' equity
Total $