CP

342 CHAPTER 9 Financial Statements, Cash Flow, and Taxes

$2.27 per share in 2002, down from $2.36 in 2001, but it still raised the dividend from

$1.06 to $1.15.^3

Taking a closer look at the income statement, we see that depreciation and amorti-

zation are important components of total operating costs. Depreciation and amortiza-

tion are similar in that both represent allocations of the costs of assets over their use-

ful lives; however, there are some important distinctions. Recall from accounting that

TABLE 9-2 MicroDrive Inc.: Income Statements for Years Ending December 31

(Millions of Dollars, Except for Per-Share Data)

2002 2001

Net sales $3,000.0 $2,850.0

Operating costs excluding depreciation and amortization 2,616.2 2,497.0

Earnings before interest, taxes, depreciation, and amortization (EBITDA) $ 383.8 $ 353.0

Depreciation 100.0 90.0

Amortization 0.0 0.0

Depreciation and amortization $ 100.0 $ 90.0

Earnings before interest and taxes (EBIT, or operating income) $ 283.8 $ 263.0

Less interest 88.0 60.0

Earnings before taxes (EBT) $ 195.8 $ 203.0

Taxes (40%) 78.3 81.2

Net income before preferred dividends $ 117.5 $ 121.8

Preferred dividends 4.0 4.0

Net income $ 113.5 $ 117.8

Common dividends $ 57.5 $ 53.0

Addition to retained earnings $ 56.0 $ 64.8

Per-Share Data

Common stock price $23.00 $26.00

Earnings per share (EPS)a $ 2.27 $ 2.36

Dividends per share (DPS)a $ 1.15 $ 1.06

Book value per share (BVPS)a $17.92 $16.80

Cash flow per share (CFPS)a $ 4.27 $ 4.16

aThere are 50,000,000 shares of common stock outstanding. Note that EPS is based on earnings after preferred dividends—that is, on net income avail-

able to common stockholders. Calculations of EPS, DPS, BVPS, and CFPS for 2002 are as follows:

.

.

.

Cash flow per shareCFPS.

Net incomeDepreciationAmortization

Common shares outstanding 

$213,500,000

50,000,000 $4.27

Book value per shareBVPS

Total common equity

Common shares outstanding

$896,000,000

50,000,000 $17.92

Dividends per shareDPS

Dividends paid to common stockholders

Common shares outstanding 

$57,500,000

50,000,000$1.15

Earnings per shareEPSCommon shares outstandingNet income $113,500,00050,000,00 $2.27

(^3) After December 15, 1997, companies have had to report “comprehensive income” as well as net income.
Comprehensive income is equal to net income plus several comprehensive income items. One example of
comprehensive income is the unrealized gain or loss that occurs when a marketable security, classified as
available for sale, is marked-to-market. For our purposes in this introductory finance text, we will assume
that there are no comprehensive income items, so we will present only basic income statements throughout
the text.
See Ch 09 Tool Kit.xls
for details.

338 Financial Statements, Cash Flow, and Taxes