Sports Written Assignment Using the Speedway Motorsports income statement from the textbook as a model

Sports Written Assignment Using the Speedway Motorsports income statement from the textbook as a model

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As of December 31 2010 2009 Speedway Motorsports Balance Sheet Assets (in thousands, except share amounts) Current assets: Cash and cash equivalents Short-term investments Accounts and notes receivable, net Prepaid income taxes Inventories, net Prepaid expenses Deferred income taxes Current assets of discontinued operation Total current assets Notes and other receivables: Affiliates $92,200 975 42,509 11,431 9,382 4,317 291 2,150 163,255 $97,651 975 40,435 15,333 11,224 3,961 459 101 170,139 4,754 6,857 32,220 4,412 4,623 27,655 1,169,281 394,972 187,326 $1,951,524 2010 1,179,055 394,983 181,013 $1,969,021 2009 $1,219 11,288 Other Other assets Property and equipment, net Other intangible assets, net Goodwill Total Liabilities and stockholders’ equity Current liabilities: Current maturities of long-term debt Accounts payable Deferred race event income, net Accrued interest Accrued expenses and other current liabilities Current liabilities of discontinued operation Total current liabilities Long-term debt (note 15) Payable to affiliate Deferred income, net Deferred income taxes $2,381 14,182 67,084 3,865 19,619 78,566 3,978 20,885 1,014 107,131 626,316 2,594 116,950 671,143 2,594 7,795 309,722 6,587 333,947 8,712 1,085,287 12,604 1,120,808 450 449 Other liabilities Total liabilities Commitments and contingencies (notes 2, 6, 8, 10, 14, and 15) Stockholders’ equity: Preferred stock, $.10 par value, shares authorized-3,000,000, no shares issued Common stock, $.01 par value, shares authorized-200,000,000, issued and outstanding-41,621,000 in 2010 and 42,266,000 in 2009 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock at cost, shares-3,398,000 in 2010 and 2,655,000 in 2009 Total stockholders’ equity Total 243,132 702,558 (72) (79,831) 866,237 $1,951,524 241,379 674,851 (64) (68,402) 848,213 $1,969,021 Figure 6.1 Speedway Motorsports balance sheet. Reprinted, by permission, from Speedway Motorsports Annual Report, 2011. Available: http://phx.corporate-ir.net/phoenix html?c=99758&p=irol-sec. Financial Statements, Forecasts, and Planning / 115 Whereas the balance sheet provides us with a snapshot at a single point in time, the income statement can be viewed as a film portraying how the organization performed between the single way Motorsports’ income statement is shown in snapshots depicted on two balance sheets. Speed- The income statement typically consists of three sections. The first section includes the revenues and expenses from the company’s operations. Second, a nonoperating section of the income statement includes financing costs and any income earned by financial investments. For Speedway Motorsports, the interest expense represents financing costs. figure 6.2. s of December 31 Speedway Motorsports Income Statement Year ended (in thousands, except per share amounts) 2009 2008 2010 Revenues: Admissions $163,087 $188,036 $139,125 Event-related revenue 156,691 178,805 211,630 NASCAR broadcasting revenue 178,722 173,803 168,159 Other operating revenue 27,705 34,827 43,168 Total revenues 502,243 550,522 610,993 Expenses and other: Direct expense of events 100,843 100,922 113,477 NASCAR purse and sanction fees 120,273 123,078 118,766 Other direct operating expense 21,846 26,208 34,965 General and administrative 85,717 84,250 84,029 Depreciation and amortization 52,762 52,654 48,146 Interest expense, net (note 6) 52,095 45,081 35,914 Equity investee losses (earnings) 76,657 (1,572) Impairment 7,273 of intangible assets (note 5) Other expense (income), net (2,378) 337 (1,077) Total expenses and other 431,158 516,460 432,648 Income from continuing operations before income 71,085 34,062 178,345 taxes Provision for income taxes (25,822) (40,220) (72,442) Income (loss) from continuing operations 45,263 (6,158) 105,903 Loss from discontinued operation, net of taxes (782) (4,145) (25,863) Net income (loss) $44,481 $(10,303) $80,040 Basic earnings (loss) per share: Continuing operations $1.08 $(0.14) $2.44 Discontinued operation (0.02) (0.10) (0.60) Net income (loss) $1.06 $(0.24) $1.84 Weighted average shares outstanding 41,927 42,657 43,410 Diluted earnings (loss) per share: Continuing operations $1.08 $(0.14) $2.44 Discontinued operation (0.02) (0.10) (0.60) Net income (loss) $1.06 $(0.24) $1.84 Weighted average shares outstanding 41,928 42,657 43,423 Figure 6.2 Speedway Motorsports income statement. Reprinted, by permission, from Speedway Motorsports Annual Report, 2011. Available: http://phx.corporate-ir.net/phoenix zhtml?c-99758&p=irol-sec. 116 / Sport Finance CONCEPTS INTO PRACTICE peedway Motorsports separately reports gen- eral and administrative costs but reports no cost goods sold because the company offers a service of goods sold. Speedway does not report cost of as opposed to a product. The company is engaged in the business of entertaining their customers with racing events As a result, Speedway reports costs and expenses associated with conducting races over the regular season, which can be viewed as the Speedwa Year end Cash flo Net inca Loss fro company’s productive activity. Cash us Impair Adjuste (Gain) short-t Deferr Intere Depre Amor Defer Equit Shar Char importance of financial statements lies in their abil- Accc Prer Inve Typically, the nonoperating section of the income statement includes all taxes paid by the enterprise. The third section of the income statement is the net income of the business. Si Under GAAP, revenue is generated when an exchange of goods or services occurs. In addition, revenues and expenses are reported when they occur, although cash inflows or outflows may or may not have occurred. For example, when goods and services are sold for credit, associated sales and profits are reported even if payment has not yet been received. This system is known as accrual basis accounting as opposed to cash basis account- ing (discussed in chapter 2), in which revenues and expenses are not recognized until actual cash inflows and outflows occur. Statement of Cash Flows The value of a firm’s assets is linked to the future incremental cash flows that they will generate, but From the perspective of financial analysis, the cash flows do not show up on the income state- ment. As a result, some expenses that appear on ity to provide information about an organization’s the income statement are not actual cash outlays. cash flows. Firms have value when they generate One such expense is depreciation. Depreciation cash flows for investors. By cash flows, we are represents an estimate by the firm’s accountants of referring directly to cash flowing into the business the cost of equipment and property that are used as well as cash flowing out of the business. To see up by the organization in the process of producing this distinction between cash flows and accounting and distributing goods and services. measures of income, recall that income statements include noncash expenses such as CONCEPTS INTO PRACTICE The amount of depreciation reported on a business’ income statement has no effect whatsoever on the cash generated by the business. When the business peedway Motorsports has a noncash expense that reports depreciation, the dollar amount reported as plant and equipment and intangible assets. Intangible depreciation is not directly paid to any vendors or assets are nonphysical fixed assets of the business that employees, as would be the case with other operat- provide value, such as patents, licenses, trademarks, ing expense categories. The statement of cash flows and copyrights. Unless one is ready to assume that an is a financial statement that reports changes in a intangible asset has unlimited life for accounting pur- company’s cash holdings over a particular period. poses, amortization must be claimed over a reporting Speedway Motorsports’ statement of cash flows is period because of either obsolescence or the “wear- shown in figure 6.3. ing out” of the intangible asset. As with depreciation, Speedway Motorsports has three primary this amortization of intangible assets does not result sources of cash flows as a result of business activi- ties. These include cash flows from (used in) operat- ing activities, cash flows from (used in) investing activities, and cash flows from (used in) financ- Companies report as the cost of goods sold those ing activities. Cash flow refers to the difference between what a company brings in and what it pays out. Thus, cash flow from (used in) operating activi- ties refers to both positive and negative cash flows Pre depreciation. Асс De Ас De 01 Ne CE B P in a cash outflow for Speedway Motorsports. expenses that are directly related to the production and distribution of goods and services. Such costs include raw materials, direct labor, and manufac- turing overhead. Other costs are allocated by the accountants preparing the financial statements to the period covered by the income statement. Such costs are reported separately as selling costs and as general and administrative costs. resulting from the firm’s basic operating activities. These include operating revenues less all operating expenses other than noncash operating expenses, such as depreciation. When a firm earns revenue, positive cash flows occur, whereas cash expenses are associated with negative cash flows. In addition, asseu Speedway Motorsports Statement of Cash Flows As of December 31 2010 2009 2008 Year ended (in thousands) Cash flows from operating activities: Net income (loss) $(10,303) $80,040 $44,481 Loss from discontinued operation, net of tax 4,145 25,863 782 (4,803) Cash used by operating activities of discontinued operation (1,513) (3,845) Impairment of intangible assets 7,273 Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: (Gain) loss on disposals of property and equipment and 820 131 (2,304) short-term investments Deferred loan cost amortization 3,584 3,101 1,772 Interest expense accretion of debt discount 1,527 1,120 Depreciation and amortization 52,762 52,654 48,146 Amortization of deferred income (1,534) (1,680) (1,536) Deferred income tax provision 24,168 29,826 12,936 Equity investee losses (earnings) 76,657 (1,572) Share-based compensation 1,979 1,585 1,538 Changes in operating assets and liabilities, net of business acquisitions: Accounts and notes receivable (1,770) 2,174 3,999 Prepaid and accrued income taxes 3,902 1,968 (3,752) Inventories 1,842 2,737 1,346 Prepaid expenses (356) (91) 20 Accounts payable (1,789) (1,733) 350 Deferred race event income (11,482) (26,826) (23,348) Accrued expenses and other liabilities (1,787) (483) (3,782) Deferred income 389 312 580 Other assets and liabilities (3,935) (3,251) 2,298 Net cash provided by operating activities 106,614 137,803 140,915 Cash flows from financing activities: Borrowings under long-term debt 296,271 300,000 Principal payments on long-term debt (51,505) (311,509) (48,446) Payments of loan amendment and debt issuance costs (88) (11,007) (452) Dividend payments on common stock (16,774) (15,352) (14,748) Exercise of common stock options 740 Tax benefit from exercise of stock options 91 Repurchases of common stock (11,429) (12,792) (9,921) Net cash provided (used) by financing activities (79,796) (54,389) 227,264 Cash flows from investing activities: Capital expenditures (37,218) (42,551) (75,004) Kentucky and New Hampshire speedway business (392,411) acquisitions, net of cash acquired Increase in short-term investments (1,365) Proceeds from (payment for) other non-current assets 1,500 (1,570) (1,387) Proceeds from: (continued) Figure 6.3 Speedway Motorsports statement of cash flows. | 117 Sport Finance 118 2010 2,755 2008 393 As of December 31 Speedway Motorsports Statement of Cash Flows 2009 98 Year ended (in thousands) Sales of property and equipment 4,503 Distributions of short-term investments Increase in notes and other receivables 694 1,079 Repayment of notes and other receivables Cash used by investing activities of discontinued operation (32,269) (38,441) Net cash used by investing activities (5,451) 44,973 Net (decrease) increase in cash and cash equivalents 97,651 52,678 Cash and cash equivalents at beginning of year $92,200 $97,651 Cash and cash equivalents at end of year Supplemental cash flow information: 52,584 45,239 Cash paid for interest, net of amounts capitalized 1,616 11,856 Cash paid for income taxes Supplemental noncash investing and financing activities information: Increase (decrease) in accounts payable for capital 4,443 (6,145) expenditures Net liabilities assumed for Kentucky and New Hampshire 6,313 speedway acquisitions Figure 6.3 (continued). zhtml?c=99758&p=irol-sec. Reprinted, by permission, from Speedway Motorsports Annual Report, 2011. Available: http://phx.corporate-ir.net/phoenix, 7,610 (3,646) 1,258 (7,222) (471,774) (103,595) 156,273 $52,678 38,137 63,308 4,195 11,174 18 cash flow occurs from investing activities because of the postponement of cash use. The cash flows associated with financing activities are cash flows to and from creditors and owners. Such cash flows include changes in the firm’s debt and equity. When the firm increases its borrowings, the cash that is created is a positive cash flow. By comparison, paying off a loan results in negative cash flow. When dividends are paid out to stockholders, negative cash flow occurs, whereas proceeds from stock issues (i.e., new owners pur- chasing stock) result in positive cash flow. operating cash flows include the positive cash flows resulting from increasing current liabilities (other than short-term debt) and the negative cash flows associated with increases in current assets (other than cash). Most companies choose to use the indirect method of cash accounting, and Speedway is no exception. Rather than add up every cash revenue and expense, the indirect method begins with the year’s net income, adds back noncash expenses, and deducts noncash revenues. This approach saves considerable time and effort because all the cash revenues and expenses are already accounted for in the net income figure. Speedway Motorsports reported positive cash flows from operating activities for the years ending December 31, 2009, and December 31, 2010. The cash flows from investing activities are associ- ated with the business’ making additions to fixed assets. Purchases of current and fixed assets lead to negative cash flow resulting from the use of cash to purchase those assets. When current and fixed assets are reduced (i.e., sold or disposed of) during the year, a positive cash flow occurs because of the cash generated by the sale of the assets. In addition, when current liabilities are increased, a positive TYPES OF FINANCIAL RATIOS Information from financial statements is used to compute financial ratios that provide insight into the condition of a business. Specifically, we define commonly used financial ratios focusing on the following areas: • Liquidity • Activity • Financial leverage • Profitability Firm valuation As of December 31 2010 2009 Speedway Motorsports Balance Sheet Assets (in thousands, except share amounts) Current assets: Cash and cash equivalents Short-term investments Accounts and notes receivable, net Prepaid income taxes Inventories, net Prepaid expenses Deferred income taxes Current assets of discontinued operation Total current assets Notes and other receivables: Affiliates $92,200 975 42,509 11,431 9,382 4,317 291 2,150 163,255 $97,651 975 40,435 15,333 11,224 3,961 459 101 170,139 4,754 6,857 32,220 4,412 4,623 27,655 1,169,281 394,972 187,326 $1,951,524 2010 1,179,055 394,983 181,013 $1,969,021 2009 $1,219 11,288 Other Other assets Property and equipment, net Other intangible assets, net Goodwill Total Liabilities and stockholders’ equity Current liabilities: Current maturities of long-term debt Accounts payable Deferred race event income, net Accrued interest Accrued expenses and other current liabilities Current liabilities of discontinued operation Total current liabilities Long-term debt (note 15) Payable to affiliate Deferred income, net Deferred income taxes $2,381 14,182 67,084 3,865 19,619 78,566 3,978 20,885 1,014 107,131 626,316 2,594 116,950 671,143 2,594 7,795 309,722 6,587 333,947 8,712 1,085,287 12,604 1,120,808 450 449 Other liabilities Total liabilities Commitments and contingencies (notes 2, 6, 8, 10, 14, and 15) Stockholders’ equity: Preferred stock, $.10 par value, shares authorized-3,000,000, no shares issued Common stock, $.01 par value, shares authorized-200,000,000, issued and outstanding-41,621,000 in 2010 and 42,266,000 in 2009 Additional paid-in capital Retained earnings Accumulated other comprehensive loss Treasury stock at cost, shares-3,398,000 in 2010 and 2,655,000 in 2009 Total stockholders’ equity Total 243,132 702,558 (72) (79,831) 866,237 $1,951,524 241,379 674,851 (64) (68,402) 848,213 $1,969,021 Figure 6.1 Speedway Motorsports balance sheet. Reprinted, by permission, from Speedway Motorsports Annual Report, 2011. Available: http://phx.corporate-ir.net/phoenix html?c=99758&p=irol-sec. Financial Statements, Forecasts, and Planning / 115 Whereas the balance sheet provides us with a snapshot at a single point in time, the income statement can be viewed as a film portraying how the organization performed between the single way Motorsports’ income statement is shown in snapshots depicted on two balance sheets. Speed- The income statement typically consists of three sections. The first section includes the revenues and expenses from the company’s operations. Second, a nonoperating section of the income statement includes financing costs and any income earned by financial investments. For Speedway Motorsports, the interest expense represents financing costs. figure 6.2. s of December 31 Speedway Motorsports Income Statement Year ended (in thousands, except per share amounts) 2009 2008 2010 Revenues: Admissions $163,087 $188,036 $139,125 Event-related revenue 156,691 178,805 211,630 NASCAR broadcasting revenue 178,722 173,803 168,159 Other operating revenue 27,705 34,827 43,168 Total revenues 502,243 550,522 610,993 Expenses and other: Direct expense of events 100,843 100,922 113,477 NASCAR purse and sanction fees 120,273 123,078 118,766 Other direct operating expense 21,846 26,208 34,965 General and administrative 85,717 84,250 84,029 Depreciation and amortization 52,762 52,654 48,146 Interest expense, net (note 6) 52,095 45,081 35,914 Equity investee losses (earnings) 76,657 (1,572) Impairment 7,273 of intangible assets (note 5) Other expense (income), net (2,378) 337 (1,077) Total expenses and other 431,158 516,460 432,648 Income from continuing operations before income 71,085 34,062 178,345 taxes Provision for income taxes (25,822) (40,220) (72,442) Income (loss) from continuing operations 45,263 (6,158) 105,903 Loss from discontinued operation, net of taxes (782) (4,145) (25,863) Net income (loss) $44,481 $(10,303) $80,040 Basic earnings (loss) per share: Continuing operations $1.08 $(0.14) $2.44 Discontinued operation (0.02) (0.10) (0.60) Net income (loss) $1.06 $(0.24) $1.84 Weighted average shares outstanding 41,927 42,657 43,410 Diluted earnings (loss) per share: Continuing operations $1.08 $(0.14) $2.44 Discontinued operation (0.02) (0.10) (0.60) Net income (loss) $1.06 $(0.24) $1.84 Weighted average shares outstanding 41,928 42,657 43,423 Figure 6.2 Speedway Motorsports income statement. Reprinted, by permission, from Speedway Motorsports Annual Report, 2011. Available: http://phx.corporate-ir.net/phoenix zhtml?c-99758&p=irol-sec. 116 / Sport Finance CONCEPTS INTO PRACTICE peedway Motorsports separately reports gen- eral and administrative costs but reports no cost goods sold because the company offers a service of goods sold. Speedway does not report cost of as opposed to a product. The company is engaged in the business of entertaining their customers with racing events As a result, Speedway reports costs and expenses associated with conducting races over the regular season, which can be viewed as the Speedwa Year end Cash flo Net inca Loss fro company’s productive activity. Cash us Impair Adjuste (Gain) short-t Deferr Intere Depre Amor Defer Equit Shar Char importance of financial statements lies in their abil- Accc Prer Inve Typically, the nonoperating section of the income statement includes all taxes paid by the enterprise. The third section of the income statement is the net income of the business. Si Under GAAP, revenue is generated when an exchange of goods or services occurs. In addition, revenues and expenses are reported when they occur, although cash inflows or outflows may or may not have occurred. For example, when goods and services are sold for credit, associated sales and profits are reported even if payment has not yet been received. This system is known as accrual basis accounting as opposed to cash basis account- ing (discussed in chapter 2), in which revenues and expenses are not recognized until actual cash inflows and outflows occur. Statement of Cash Flows The value of a firm’s assets is linked to the future incremental cash flows that they will generate, but From the perspective of financial analysis, the cash flows do not show up on the income state- ment. As a result, some expenses that appear on ity to provide information about an organization’s the income statement are not actual cash outlays. cash flows. Firms have value when they generate One such expense is depreciation. Depreciation cash flows for investors. By cash flows, we are represents an estimate by the firm’s accountants of referring directly to cash flowing into the business the cost of equipment and property that are used as well as cash flowing out of the business. To see up by the organization in the process of producing this distinction between cash flows and accounting and distributing goods and services. measures of income, recall that income statements include noncash expenses such as CONCEPTS INTO PRACTICE The amount of depreciation reported on a business’ income statement has no effect whatsoever on the cash generated by the business. When the business peedway Motorsports has a noncash expense that reports depreciation, the dollar amount reported as plant and equipment and intangible assets. Intangible depreciation is not directly paid to any vendors or assets are nonphysical fixed assets of the business that employees, as would be the case with other operat- provide value, such as patents, licenses, trademarks, ing expense categories. The statement of cash flows and copyrights. Unless one is ready to assume that an is a financial statement that reports changes in a intangible asset has unlimited life for accounting pur- company’s cash holdings over a particular period. poses, amortization must be claimed over a reporting Speedway Motorsports’ statement of cash flows is period because of either obsolescence or the “wear- shown in figure 6.3. ing out” of the intangible asset. As with depreciation, Speedway Motorsports has three primary this amortization of intangible assets does not result sources of cash flows as a result of business activi- ties. These include cash flows from (used in) operat- ing activities, cash flows from (used in) investing activities, and cash flows from (used in) financ- Companies report as the cost of goods sold those ing activities. Cash flow refers to the difference between what a company brings in and what it pays out. Thus, cash flow from (used in) operating activi- ties refers to both positive and negative cash flows Pre depreciation. Асс De Ас De 01 Ne CE B P in a cash outflow for Speedway Motorsports. expenses that are directly related to the production and distribution of goods and services. Such costs include raw materials, direct labor, and manufac- turing overhead. Other costs are allocated by the accountants preparing the financial statements to the period covered by the income statement. Such costs are reported separately as selling costs and as general and administrative costs. resulting from the firm’s basic operating activities. These include operating revenues less all operating expenses other than noncash operating expenses, such as depreciation. When a firm earns revenue, positive cash flows occur, whereas cash expenses are associated with negative cash flows. In addition, asseu Speedway Motorsports Statement of Cash Flows As of December 31 2010 2009 2008 Year ended (in thousands) Cash flows from operating activities: Net income (loss) $(10,303) $80,040 $44,481 Loss from discontinued operation, net of tax 4,145 25,863 782 (4,803) Cash used by operating activities of discontinued operation (1,513) (3,845) Impairment of intangible assets 7,273 Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: (Gain) loss on disposals of property and equipment and 820 131 (2,304) short-term investments Deferred loan cost amortization 3,584 3,101 1,772 Interest expense accretion of debt discount 1,527 1,120 Depreciation and amortization 52,762 52,654 48,146 Amortization of deferred income (1,534) (1,680) (1,536) Deferred income tax provision 24,168 29,826 12,936 Equity investee losses (earnings) 76,657 (1,572) Share-based compensation 1,979 1,585 1,538 Changes in operating assets and liabilities, net of business acquisitions: Accounts and notes receivable (1,770) 2,174 3,999 Prepaid and accrued income taxes 3,902 1,968 (3,752) Inventories 1,842 2,737 1,346 Prepaid expenses (356) (91) 20 Accounts payable (1,789) (1,733) 350 Deferred race event income (11,482) (26,826) (23,348) Accrued expenses and other liabilities (1,787) (483) (3,782) Deferred income 389 312 580 Other assets and liabilities (3,935) (3,251) 2,298 Net cash provided by operating activities 106,614 137,803 140,915 Cash flows from financing activities: Borrowings under long-term debt 296,271 300,000 Principal payments on long-term debt (51,505) (311,509) (48,446) Payments of loan amendment and debt issuance costs (88) (11,007) (452) Dividend payments on common stock (16,774) (15,352) (14,748) Exercise of common stock options 740 Tax benefit from exercise of stock options 91 Repurchases of common stock (11,429) (12,792) (9,921) Net cash provided (used) by financing activities (79,796) (54,389) 227,264 Cash flows from investing activities: Capital expenditures (37,218) (42,551) (75,004) Kentucky and New Hampshire speedway business (392,411) acquisitions, net of cash acquired Increase in short-term investments (1,365) Proceeds from (payment for) other non-current assets 1,500 (1,570) (1,387) Proceeds from: (continued) Figure 6.3 Speedway Motorsports statement of cash flows. | 117 Sport Finance 118 2010 2,755 2008 393 As of December 31 Speedway Motorsports Statement of Cash Flows 2009 98 Year ended (in thousands) Sales of property and equipment 4,503 Distributions of short-term investments Increase in notes and other receivables 694 1,079 Repayment of notes and other receivables Cash used by investing activities of discontinued operation (32,269) (38,441) Net cash used by investing activities (5,451) 44,973 Net (decrease) increase in cash and cash equivalents 97,651 52,678 Cash and cash equivalents at beginning of year $92,200 $97,651 Cash and cash equivalents at end of year Supplemental cash flow information: 52,584 45,239 Cash paid for interest, net of amounts capitalized 1,616 11,856 Cash paid for income taxes Supplemental noncash investing and financing activities information: Increase (decrease) in accounts payable for capital 4,443 (6,145) expenditures Net liabilities assumed for Kentucky and New Hampshire 6,313 speedway acquisitions Figure 6.3 (continued). zhtml?c=99758&p=irol-sec. Reprinted, by permission, from Speedway Motorsports Annual Report, 2011. Available: http://phx.corporate-ir.net/phoenix, 7,610 (3,646) 1,258 (7,222) (471,774) (103,595) 156,273 $52,678 38,137 63,308 4,195 11,174 18 cash flow occurs from investing activities because of the postponement of cash use. The cash flows associated with financing activities are cash flows to and from creditors and owners. Such cash flows include changes in the firm’s debt and equity. When the firm increases its borrowings, the cash that is created is a positive cash flow. By comparison, paying off a loan results in negative cash flow. When dividends are paid out to stockholders, negative cash flow occurs, whereas proceeds from stock issues (i.e., new owners pur- chasing stock) result in positive cash flow. operating cash flows include the positive cash flows resulting from increasing current liabilities (other than short-term debt) and the negative cash flows associated with increases in current assets (other than cash). Most companies choose to use the indirect method of cash accounting, and Speedway is no exception. Rather than add up every cash revenue and expense, the indirect method begins with the year’s net income, adds back noncash expenses, and deducts noncash revenues. This approach saves considerable time and effort because all the cash revenues and expenses are already accounted for in the net income figure. Speedway Motorsports reported positive cash flows from operating activities for the years ending December 31, 2009, and December 31, 2010. The cash flows from investing activities are associ- ated with the business’ making additions to fixed assets. Purchases of current and fixed assets lead to negative cash flow resulting from the use of cash to purchase those assets. When current and fixed assets are reduced (i.e., sold or disposed of) during the year, a positive cash flow occurs because of the cash generated by the sale of the assets. In addition, when current liabilities are increased, a positive TYPES OF FINANCIAL RATIOS Information from financial statements is used to compute financial ratios that provide insight into the condition of a business. Specifically, we define commonly used financial ratios focusing on the following areas: • Liquidity • Activity • Financial leverage • Profitability Firm valuation
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