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ch_2_fin_200.pptx - Financial statement taxes and cash flow...

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+ Financial statement, taxes, and cash flow CH 2
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+ Introduction Our emphasis is not on preparing financial statement. Financial statement are frequently a key source of information for financial decision. There are two important differences we have to understand: 1. The difference between accounting value and market value. 2. The differences between accounting income cash flow
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+ 2.1 the balance sheet The balance sheet is a financial statement showing a firm’s accounting value on a particular date. On the left side we have what a firm owns (assets), and on the right side we have what the firm owes (liabilities).
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+ Assets Assets are classified as current or fixed assets. A fixed assets is has long life. Fixed assets can be tangible (truck, computer) or intangible (trademark, patent) . A current assets has a life of less than one year, that’s mean the assets will convert to cash within 12 month.
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+ Liabilities and owners’ equity Liabilities are classified as current or long-term. Current liabilities have life less than one year (that’s mean they must paid within the year). It listed before long-term liabilities in balance sheet. Example of current liabilities: Account payable (money the firm owes to suppliers). A debt that is not due in the coming year is classified as long- term liabilities. A firm will pay off it’s debt in five year is a long- term debt. firm’s borrow in long term from a variety sources. Bond and Bondholder refer to long-term debt and long-term creditors. The difference between total value of assets and total value of liabilities is the shareholder equity (common equity or owner’s equity). If the firm were to sell its assets and use the money to pay off its debt. The value remaining would belong to shareholder.
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+ Assets = Liabilities + Shareholders’ equity The right side will always equals to the left side in the balance sheet Because shareholders’ equity id define as the differences between assets and liabilities.
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+ Networking capital Networking capital (NWC) is the difference between a firm’s current assets and current liabilities. NWC is positive when current assets is exceed current liabilities, that’s mean the cash that will become available over 12 month exceed the cash that must be paid. NWC = 100 – 70 = $30 Assets Liabilities & equity Current assets $100 Current liabilities $70 Net fixed assets $500 Long-term liabilities $200 Shareholders’ equity $330 Total assets $600 Total liabilities & shareholders’ equity $600
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+ liquidity Liquidity refers to the speed and ease with which an assets can be converted to cash. Gold is relatively liquidity assets but customer manufacturing facilities is not. A highly liquid assets is one that can be quickly sold without significant loss of value.
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