RelativeResourceManager3 - Chapter 3 Financial Statements...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 3: Financial Statements, Cash Flow, and Taxes Learning Objectives 49 Chapter 3 Financial Statements, Cash Flow, and Taxes Learning Objectives After reading this chapter, students should be able to: Briefly explain the history of accounting and financial statements, and how financial statements are used. List the types of information found in a corporation’s annual report. Explain what a balance sheet is, the information it provides, and how assets and claims on assets are arranged on a balance sheet. Explain what an income statement is and the information it provides. Differentiate between net cash flow and accounting profit. Identify the purpose of the statement of cash flows, list the factors affecting a firm’s cash position that are reflected in this statement, and identify the three categories of activities that are separated out in this statement. Specify the changes reported in a firm’s statement of retained earnings. Discuss what questions can be answered by looking through the financial statements, and explain why investors need to be cautious when they review financial statements. Discuss how certain modifications to the accounting data are needed and used for corporate decision making and stock valuation purposes. In the process, explain the terms: net operating working capital, total operating capital, NOPAT, operating cash flow, and free cash flow; and explain how each is calculated. Define the terms Market Value Added (MVA) and Economic Value Added (EVA), explain how each is calculated, and differentiate between them. Explain why financial managers must be concerned with taxation, and list some of the most important elements of the current tax law, such as the differences between the treatment of dividends and interest paid and interest and dividend income received.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
50 Integrated Case Chapter 3: Financial Statements, Cash Flow, and Taxes Answers to End-of-Chapter Questions 3-1 The four financial statements contained in most annual reports are the balance sheet, income statement, statement of retained earnings, and statement of cash flows. 3-2 Accountants translate physical quantities into numbers when they construct the financial statements. The numbers shown on balance sheets generally represent historical costs. When examining a set of financial statements, one should keep in mind the physical reality that lies behind the numbers, and the fact that the translation from physical assets to numbers is far from precise. 3-3 Bankers and investors use financial statements to make intelligent decisions about what firms to extend credit or invest in, managers need financial statements to operate their businesses efficiently, and taxing authorities need them to assess taxes in a reasonable way.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern