Unit 3 Assessment — Financial Statements, Cash Flow & Taxes

📊 Income Statement

🏦 Balance Sheet

💵 Cash Flow

🧾 Taxes

Income Statement Flow

Gross ProfitRevenue − Cost of Goods Sold (COGS)

EBITDAGross Profit − Operating Expenses (before D&A)

EBIT (Operating Income)EBITDA − Depreciation & Amortization

EBTEBIT − Interest Expense

Net IncomeEBT − Taxes = EBT × (1 − Tax Rate)

NOPATEBIT × (1 − Tax Rate) — operating profit, no financing effects

Balance Sheet

Accounting IdentityAssets = Liabilities + Stockholders' Equity — always balances

Current AssetsCash, AR, Inventory — convertible to cash within 1 year

Long-Term AssetsPP&E, intangibles — depreciated over multiple years

Current LiabilitiesAP, accruals, short-term notes — due within 1 year

Stockholders' EquityCommon Stock + Retained Earnings = Assets − Liabilities

Net Working CapitalCurrent Assets − Current Liabilities

Cash Flow Formulas

Operating CF (OCF)NOPAT + Depreciation = EBIT(1−T) + Dep

Free Cash Flow (FCF)OCF − Capital Expenditures − ΔNWC

Depreciation Tax ShieldDepreciation × Tax Rate = annual tax saving

Why Add Back Dep?Depreciation is non-cash — reduces taxable income but no cash leaves the firm

3 CF SectionsOperating (day-to-day) · Investing (long-term assets) · Financing (debt & equity)

Tax Concepts

Progressive TaxHigher income → higher bracket rate; each bracket applies only to income within that range — not all income

Marginal Tax RateRate on the NEXT dollar earned — used in ALL financial decisions (depreciation shield, after-tax cost of debt)

Average Tax RateTotal Taxes Paid ÷ Total Taxable Income — always ≤ marginal rate

After-Tax IncomeGross Income × (1 − Marginal Rate)

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out of 100 points

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Section 1

—/40

Multiple Choice

Section 2

—/20

True / False

Section 3

—/20

Short Answer

Section 4

—/20

Extended Response

⚠ Sections 3 & 4 are teacher-graded. Use the rubric selectors below to finalize the score.

Multiple Choice

Income statement · Balance sheet · Cash flow · EBITDA · FCF · NOPAT · Taxes

2 pts each · 40 pts

Click the best answer for each question. Use the formula reference panel and IS flow strip above. Each question is worth 2 points.

True or False

Click TRUE or FALSE for each statement

2 pts each · 20 pts

Select TRUE or FALSE. Each is worth 2 points.

Short Answer

Show all calculations + explain in 2–4 sentences · Teacher-graded

5 pts each · 20 pts

Answer in 2–4 complete sentences. Show every calculation step. Rubric selectors appear after grading.

Extended Response — Bessemer Community Bakery: Full Financial Analysis

Income statement · NOPAT · FCF · Progressive tax brackets · Cash vs. profit memo · Teacher-graded

20 pts

Read the scenario carefully. Write a well-organized financial analysis memo of at least 8 sentences. Show all calculations with labeled steps. Use and underline at least four unit vocabulary terms.

📋 Scenario — Bessemer Community Bakery (BCB)

Bessemer Community Bakery is a youth-operated social enterprise launched through BBYM. At year-end, the student CFO collects the data below and asks you to prepare the complete financial picture for the board.

Income Statement Data

Net Sales: $320,000
COGS: $140,000
Operating Expenses: $60,000
Depreciation: $18,000
Interest Expense: $7,000
Tax Rate: 25%

Balance Sheet Highlights

Total Assets: $280,000
Current Assets: $90,000
Current Liabilities: $45,000
Long-Term Debt: $80,000
Common Equity: $155,000

Cash Flow Inputs

Capital Expenditures: $22,000
Increase in NWC: $8,000

Owner's W-2 Tax Context

Owner's taxable salary: $85,000
Brackets: 10% on first $11K; 12% on $11K–$44K; 22% on $44K–$95K

35 Write your full financial analysis memo covering all four parts: (a) Build BCB's complete income statement — show every line from Net Sales to Net Income (Gross Profit, EBITDA, EBIT, EBT, Taxes, Net Income) with labeled calculations; (b) Calculate NOPAT and Free Cash Flow (FCF) showing all steps; explain in 1–2 sentences why FCF differs from Net Income and which better represents cash available to investors; (c) Calculate the owner's federal income tax on her $85,000 W-2 salary using the progressive bracket system — show each bracket's tax, total tax, average tax rate, and marginal tax rate; explain the difference between the two rates; (d) Write a 2–3 sentence memo to the BBYM board summarizing BCB's financial health and explaining why young community entrepreneurs must understand the difference between net income and free cash flow. Use at least four underlined vocabulary terms.

📋 Teacher Scoring Rubric

Criterion	Excellent (Full)	Proficient (Partial)	Developing (Minimal)	Score
Part (a) — Full Income Statement Gross Profit = 320K−140K = $180,000 · EBITDA = 180K−60K = $120,000 · EBIT = 120K−18K = $102,000 · EBT = 102K−7K = $95,000 · Taxes = 95K×25% = $23,750 · Net Income = $71,250	All 6 lines correct with labels and arithmetic shown	4–5 lines correct; minor arithmetic error	1–3 lines; structure unclear	/6
Part (b) — NOPAT & FCF NOPAT = 102,000×0.75 = $76,500 · OCF = 76,500+18,000 = $94,500 · FCF = 94,500−22,000−8,000 = $64,500 · FCF ($64,500) < NI ($71,250) because CapEx and ΔNWC are real cash outflows not on IS; FCF better reflects cash for investors	NOPAT, OCF, FCF all correct; clear explanation with investor relevance	FCF correct; explanation thin or one error	Formula attempted; errors; no explanation	/6
Part (c) — Progressive Tax Brackets Bracket 1: $11,000×10% = $1,100 · Bracket 2: $33,000×12% = $3,960 · Bracket 3: $41,000×22% = $9,020 · Total = $14,080 · Average rate = 14,080÷85,000 = 16.6% · Marginal rate = 22% · Average = fraction of all income paid; Marginal = rate on the next dollar — drives financial decisions	All 3 brackets + total correct; both rates with clear explanation	2 brackets correct; one rate defined correctly	Only 1 bracket; rates missing or confused	/4
Part (d) — Board Memo & Vocabulary	Coherent memo: BCB profitable (NI=$71,250) but FCF lower ($64,500) due to capital investment — a healthy growth signal; argues net income misleads young entrepreneurs about available cash; ≥4 underlined vocabulary terms used correctly	Recommendation made with partial reasoning; 2–3 vocabulary terms	Vague; fewer than 2 terms; no financial reasoning	/4

Extended Response Total: — / 20

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Financial Statements,Cash Flow & Taxes

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Financial Statements,
Cash Flow & Taxes