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Income Statement Classification

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. Statement of Cash Flows. FASB 95--1987 Components

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Income Statement Classification

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  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 Goldratt’s The Goal • The goal of a business is to make money…consistent 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. Lou’s Moral Dilemma • What caused it? • How did he handle it? • How would you handle it?

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