Understanding Financial Statements and the EU Single Market

The EU Single Market

Key Freedoms of the EU Single Market

1. Free Movement of Persons: All EU citizens can move freely, reside, and take up work within the EU area.
2. Free Movement of Goods: Goods are not subject to border controls, tariffs, or quotas within the EU. This simplifies and promotes trade between member states.
3. Free Movement of Services: Service providers from an EU state are free to offer their services in any state of the EU single market, even without settling there.
4. Free Movement of Capital: Restrictions on capital and payment transactions between states of the EU single market are prohibited.

Financial Statements

Income Statement

A financial statement that shows the revenues, expenses, and net income of a firm over a period of time.

Statement of Cash Flows

Shows the firm's cash receipts and cash payments over time. Free Cash Flow is cash available for distribution to investors after the firm pays for new investments or additions to working capital.

Categories of Cash Flow Statements

• Operating Cash Flow: Cash flows related to a company's operations, that is, its day-to-day business.
• Investing Cash Flow: Cash flows related to its investments in businesses through acquisition; in long-term assets, such as towers for a telecom provider; and in securities.
• Financing Cash Flow: Cash flows related to a company's investors and creditors.

Book Value vs. Market Value

• Book Value: Value of assets or liabilities according to the balance sheet. Values recorded at their historical cost adjusted for depreciation.
• Market Value: The value of assets or liabilities were they to be resold in a market.

Example Balance Sheet

Assets

• Cash: 11,000
• Accounts Receivable: 23,000
• Inventory: 210,000
• Store and Property: 110,000
• Total Assets: 354,000

Liabilities & Shareholders' Equity

• Accounts Payable: 18,000
• Long-term Debt: 180,000
• Shareholders' Equity: 156,000
• Total Liabilities & Shareholders' Equity: 354,000

Example Income Statement (No Taxes)

• Net Income: Revenues - Expenses (20% is 200, 100% is 10,000)
• Revenue (23): COGS (8) + Admin Exp (3) + Depreciation (1) + Net Income (10)
• EBIT (11): Revenue (23) - COGS (8) - Admin Exp (3) - Depreciation (1)