Working Capital and Capital Structure

In part one of Corporate Finance, I covered Capital Budgeting which helps a company make future investment decisions based on previous Financial Statements as a past reference. To effectively evaluate a company’s Financial Statements we must first calculate the company’s Income Statement. To do this we must start by subtracting Cost of Goods Sold (COGS) by Sales which equates to our Gross Profit. We then calculate in our expenses, which in the case of Corporate Finance would typically include: Research and Development (R&D) expenses, Selling, General and Administrative (SG&A) expenses, Depreciation and Amortization, Goodwill, add other income which would be written off as an expense, and altogether would equate to Earnings Before Interest and Taxes (EBIT). We’d then subtract Interest and Taxes which calculates into our Earnings After Tax (EAT) or Net Income. After this the Finance Manager may ration a percentage of this income back to shareholders in the form of dividends…

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