Chap002s - Financial Statements Taxes and Cash Flow Chapter...

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Financial Statements, Taxes and Cash Flow Chapter Two
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Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities at a given point in time Assets are listed in order of liquidity Ease of conversion to cash Without significant loss of value Balance Sheet Identity Assets = Liabilities + Stockholders’ Equity
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The Balance Sheet - Figure 2.1
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Net Working Capital and Liquidity Net Working Capital Current Assets – Current Liabilities Positive when the cash that will be received over the next 12 months exceeds the cash that will be paid out Usually positive in a healthy firm Liquidity Ability to convert to cash quickly without a significant loss in value Liquid firms are less likely to experience financial distress But, liquid assets earn a lower return
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US Corporation Balance Sheet – Table 2.1
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Market Vs. Book Value The balance sheet provides the book value of the assets, liabilities and equity.
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