CHAPTER 3

CHAPTER 3 - CHAPTER 3 Understanding Financial Statements and Cash Flows Orientation In this chapter we review the contents and meaning of a firm's

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CHAPTER 3 Understanding Financial Statements and Cash Flows Orientation : In this chapter, we review the contents and meaning of a firm’s income statement and balance sheet. We also look very carefully at how to compute a firm’s cash flows from a finance perspective, rather than how the accountants calculate a company’s cash flows. We will teach you how to compute what we call “free cash flows” and “financing cash flows”. I. Basic Financial Statements A. The Income Statement 1. The income statement reports the results from operating the business for a period of time, such as a year. 2. It is helpful to think of the income statement as comprising four types of activities: a. Selling the product b. The cost of producing or acquiring the goods or services sold c. The expenses incurred in marketing and distributing the product or service to the customer, along with administrative operating expenses d. The financing costs of doing business, for example, interest paid to creditors and dividend payments to the preferred stockholders 3. An example of an income statement is provided in the Foundations textbook in Table 3-1 for the Starbucks Corporation. B.
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This note was uploaded on 06/23/2008 for the course FIN 3310 taught by Professor Potts during the Spring '08 term at Baylor.

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CHAPTER 3 - CHAPTER 3 Understanding Financial Statements and Cash Flows Orientation In this chapter we review the contents and meaning of a firm's

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