FNCE-Ch2 - Chapter 2 Financial Statements, Taxes and Cash...

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Unformatted text preview: Chapter 2 Financial Statements, Taxes and Cash Flows 1 Chapter Outline 2.1 The Balance Sheet 2.2 The Income Statement 2.3 Taxes 2.4 Cash Flow 2 Key Concepts and Skills Know the difference between book value and market value Know the difference between accounting income and cash flow Know the difference between average and marginal tax rates Know how to determine a firms cash flow from its financial statements 3 2.1 Balance Sheet Assets are listed from Most Liquid to Least Liquid Net Fixed Assets is Book Value (LOCOM) net of Accumulated Depreciation Assets = Liabilities + OE OE = Assets - Liabilities 4 5 Balance Sheet (Continued 1) The balance sheet is a snap-shot What does the company own today? What does the company owe today? How much do the owners own (called the residual ) The left side shows what is being employed by the business to do what it does Inventory, Cash, Factories, Machines, Trucks The right side shows how it paid for the assets How much is borrowed and for how long How much is left for the owners Note: Owners Equity is not how much the owners contributed. It is the current residual value . 6 Balance Sheet (Continued 2) Debt is also called Leverage Given the equity, what value of assets are employed? Put up $1m, borrow $1m, Employ $2m in assets Put up $1m, borrow $2m, Employ $3m in assets Market Value vs. Book Value: 1.Market Value of Assets vs. Book Value of Assets GAAP: LOCOM Coors in Golden: Land on books at cost What is the market value of the land? 2.Market Value of Equity vs. Book Value of Equity Book Value of Equity = Book Value of Assets Liabilities Market Value of Equity = # of Shares x Price per Share What would account for the difference between book and market?...
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FNCE-Ch2 - Chapter 2 Financial Statements, Taxes and Cash...

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