ch05 part 1 - Chapter 5: Balance Sheet and Statement of...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
  Chapter 5. part 1 1 Chapter 5: Balance Sheet  and Statement of Cash Flows AIM 3331-0U1 Summer 2009 Xinyi Lu
Background image of page 1

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

View Full DocumentRight Arrow Icon
  Chapter 5. part 1 2 Part 1 : Balance Sheet 1. Explain the uses and limitations of a balance sheet. 2. Identify the major classifications of the balance sheet. 3. Prepare a classified balance sheet using the report  and account formats. 4. Determine which balance sheet information requires  supplemental disclosure. 5. Describe the major disclosure techniques for the  balance sheet.
Background image of page 2
  Chapter 5. part 1 3 Part 2: Statement of Cash Flows 1. Indicate the purpose of the statement of cash flows. 2. Identify the content of the statement of cash flows. 3. Prepare a statement of cash flows. 4. Understand the usefulness of the statement of cash  flows.
Background image of page 3

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

View Full DocumentRight Arrow Icon
  Chapter 5. part 1 4 Balance Sheet “Statement of Financial Position” Reports the  assets liabilities , and  owner’s equity  of a enterprise  at a  specific date . Provides the information about the  nature  and  amount  of  resources  and  claims  to the resources in the  enterprise.
Background image of page 4
  Chapter 5. part 1 5 Usefulness of the Balance Sheet To evaluate the capital structure. To assess risk and future cash flows. To analyze the company’s:  Liquidity,  Solvency, and  Financial flexibility.
Background image of page 5

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

View Full DocumentRight Arrow Icon
  Chapter 5. part 1 6 Liquidity Liquidity  describes the amount of time that is expected  to elapse until an asset is realized or otherwise  converted into cash or until a liability has to be paid. Indicators : Current ratio, Quick (acid-test) ratio, Current  cash debt converge ratio, working capital, etc. Usefulness : Creditors use it to assess a firm’s ability to pay its current and  maturing obligations; Stockholders use it to assess the possibility of future cash  dividends, buyback of shares. In general, the greater the liquidity, the lower the risk of  failure.
Background image of page 6
  Chapter 5. part 1 7 Solvency Solvency : the ability of a firm to pay its  debts as they mature. Indicators : Solvency ratio, leverage, etc. In general, The better a firm’s solvency,  the better it is financially. When a  company is insolvent, it means that it can  no longer operate and is undergoing  bankruptcy. 
Background image of page 7

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

View Full DocumentRight Arrow Icon
Chapter 5. part 1 8 Financial Flexibility Financial flexibility : the ability of a firm  to take effective actions to alter the  amounts and timing of cash flows so it  can respond to unexpected needs and  opportunities. Liquidity and solvency affect flexibility.
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 42

ch05 part 1 - Chapter 5: Balance Sheet and Statement of...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online