Income Statement Classification

1
Income Statement Classification

• Operating income
• Other income and expense
• Income from continuing operations
• Income, gains losses from discontinued
  operations
• Extraordinary gains and losses
• Changes in accounting principles

2
Statement of Cash Flows

• FASB 95--1987
• Components
• Operating cash Operations and working capital
• Investing cash Non-current assets and
  investments
• Financing cash L/T debt, equity and dividends

3
Net Income vs. Cash FlowIndirect Method

• Net Income
• /- Non-cash Items
• /- Changes in Operating Working Capital
• Cash Flow from Operations

4
Indirect vs. Direct Method

• FASB prefers the direct method
• FASB requires net income to cash from operations
  reconciliation
• Components
• Cash from customers
• Cash from dividends
• Cash from interest income
• Other operating cash receipts
• Cash paid to suppliers
• Cash paid to employees
• Cash paid for taxes
• Cash paid for interest
• Other operating cash payments

5
Economic Value Added

• Income from Capital
• - Cost of Capital
• E V A?

6
Sources of Capital

• Debt (interest )
• Equity (interest 6)

7
Capital

• Working capital
• Net tangible non-current assets
• Capitalized R D
• Capitalized Employee Devel. Costs

8
Adj. Operating Income

• Operating income
• Plus
• R D
• Emp. Devel. Costs
• Minus
• R D Amort.
• Emp. Devel. Cost Amort

9
Keys to Success

• Make it a way of life
• K I S S
• CEO / Management buy-in
• Gradual introduction
• Thorough training

10
Theory of Constraints

• The Concept
• The Process
• The Measures

11
The Concept

• Presented in Eliyahu Goldratts The Goal
• The goal of a business is to make
  moneyconsistent with customer satisfaction
• Continuous flow
• Avoid the herbies
• Eliminate the bottlenecks first

12
The Process

• Identify the constraints
• Exploit the constraints (reduce the bottlenecks)
• Subordinate everything else
• Elevate the constraints (remove the bottlenecks)
• Reiterate the process

13
The Measures

• Throughput - Net income
• Inventory - ROI
• Ops. Expenses - Cash Flow

14
Lous Moral Dilemma

• What caused it?
• How did he handle it?
• How would you handle it?