FM_ch2_notes - Chapter 2: Financial Statements, Cash Flows,...

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Chapter 2: Financial Statements, Cash Flows, and Taxes Four Principal Financial Statements o Developed by the Canadian Institute of Chartered Accountants: 1.Income Statement 2.Balance Sheet 3.Statement of Retained Earnings 4.Statement of Cash Flows Income Statement Provides financial summary of operating results for a specified period. Main operating results consist of: o Sales revenues, Cost of goods sold, Operating expenses, Interest expenses, Taxes, and Preferred share dividends. Important sub-totals of these operating results are: o Gross margin. o Operating earnings (EBIT). o Earnings before taxes (EBT). o Net Income after taxes (NIAT). o Earnings available for common shareholders (EAC). Balance Sheet Presents summary of firm’s financial position at a given point in time. Assets = Liabilities + Equity . In the short term, working capital management focuses on current assets and current liabilities . Current Assets: o Cash, Marketable securities, Accounts receivable, Inventories Gross Fixed Assets: o Less: Accumulated amortization Current Liabilities: o Accounts payable, Line of credit, Accruals Long-term debt Shareholder’s equity: o Preferred shares, Common shares, Retained earnings Statement of Retained Earnings Details changes in Retained Earnings from the beginning to the end of the fiscal year. 1
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Chapter 2: Financial Statements, Cash Flows, and Taxes Statement of Cash Flows Provides summary of all inflows and outflows of cash over the same period as the Balance Sheet. Provides insights into the firm’s operating, investment, and financing cash flows. Reconciles changes in cash and marketable securities. The Firm’s Cash Flows Operating Flows: Payments: o Accruals, Credit purchases, Taxes, Overhead expenses Receipts: o Cash sales, Collection of credit sales, Tax refunds Investment Flows: o Fixed assets, Business interests Financing Flows: o Increases in Debt or Equity o Reductions in Debt or Equity Figure 2.2 Cash Flows 2
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Chapter 2: Financial Statements, Cash Flows, and Taxes Classifying Inflows and Outflows of Cash Inflows Outflows Decrease in any asset
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This note was uploaded on 11/15/2009 for the course BBA ADMN3116 taught by Professor G.jensen during the Fall '09 term at Laurentian.

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FM_ch2_notes - Chapter 2: Financial Statements, Cash Flows,...

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