Finance 3403 Chapter 2 Notes - Chapter 2 Financial...

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Chapter 2 Financial Statements, Taxes, and Cash Flow 2.1 The Balance Sheet Assets: The Left-Hand Side (see below) Liabilities and Owners’ Equity: The Right-Hand Side (see below) Net Working Capital= Current Assets – Current Liabilities The difference between a firm’s current assets and its current liabilities. Balance Statement ASSETS LIABILITIES AND SHAREHOLDERS EQUITY Short term: Cash Current Liab: A/P (or current) A/R Notes Payable Inventory Ttl Current: Total Current Assets: Long term Debt Long term (fixed):Real Assets (Property Plant Equipment) Shareholders Common Stock Equity: Additional Paid-in capital Intangible A. (Copyrights Retained Earnings Trademark Patents) TOTAL ASSETS = TOTAL LIAB’S & SE Notes: Assets listed in order of Decreasing Liquidity High Liquidity: Conversion to cash… now (time)! Increasing liquidity applies to Asset Side. BS: Snap Shot (End of year) Book Value (recorded historically) vs. Market Value (Investor perception!) What was paid, etc (past tense) IMPORTANT IDENTIY; TOTAL ASSETS = TOTAL LIAB’S + SHAREHOLDER EQUITY
Liquidity: Assets appear on the balance sheet in descending order of liquidity.

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