Notes - ACCY 301 Measurement and Disclosure Dr. James Gong...

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Click to edit Master subtitle style ACCY 301 Measurement and Disclosure Dr. James Gong
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Agenda n Course introduction – 20 min n Half of you introduce yourselves – 15 min n Syllabus details – 20 min n Half of you introduce yourselves – 15 min n Video time – 20 min
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Course Introduction  n Why accounting? 
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Course Introduction  n Why accounting?  n According to finance theory, firm valuation is  only dependent upon cash flow n Why do we need accrual accounting and report  accounts receivable, inventory, accounts  payable, etc?
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Cash Flow vs. Accruals (I) Cash flow in year (t+1) Cash flow in year t 0.73 Earnings before depreciation in year t 0.69 0.66 Change in AR in year t 0.40 Change in inventory in year t 0.10 Change in AP in year t -0.34 Change in other accruals in year t 0.02 Depreciation in year t 0.02 R2 0.54 0.51 0.67
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Cash Flow vs. Accruals (II) n CEO/CFO responses to the question: Rank the three most  important performance measures reported to outsiders  (Graham, Harvey and Rajgopal, 2005, p.18) Measure #1 rank #2 rank #3 rank Total points Average  points Earnings 159 67 31 642 2.10 Revenues 36 97 75 377 1.24 Cash flows  from  operations 36 72 93 345 1.13 Free cash  flows 30 41 42 214 0.70
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Course Introduction  n Why accounting?  n Other roles of accounting besides firm  valuation?
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Notes - ACCY 301 Measurement and Disclosure Dr. James Gong...

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