Lecture 2 - Lecture 2 Accounting for Corporate Finance:...

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Lecture 2 Accounting for Corporate Finance: Financial Statements, Taxes, and Cash Flow (Ch.2) McGraw-Hill/Irwin
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Lecturer Outline The Balance Sheet The Income Statement Taxes Cash Flow 2-2
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Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities at a given point in time Assets (what a firm owns): Current Liabilities (what a firm owes): Current Long-term Shareholder’s equity: Total value of assets - total value of liabilities 2-3
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The Balance Sheet - Figure 2.1 2-4
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Balance Sheet Balance Sheet Identity: Assets = Liabilities + Stockholders’ Equity Net Working Capital = Current Assets – Current Liabilities Positive when the cash that will be received over the next 12 months exceeds the cash that will be paid out Usually positive in a healthy firm 2-5
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US Corporation Balance Sheet – Table 2.1 Place Table 2.1 (US Corp Balance Sheet) here 2-6
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Liquidity Liquidity – measures how quickly and easily an asset can be converted to cash without significant loss in value Is it good for a firm to have high liquidity? – Liquid firms are less likely to experience financial distress – But liquid assets typically earn a lower return – Trade-off to find balance between liquid and illiquid assets 2-7
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Debt vs. Equity Equity holders receive only the residual value ( portion left after creditors are paid) Financial leverage: use of debt in a firm’s capital structure (% of assets) The more debt – the higher financial leverage 2-8
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Market Value vs. Book Value
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This note was uploaded on 03/17/2010 for the course ECON 365 taught by Professor Svitlanazhylenko during the Spring '10 term at CUNY Hunter.

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Lecture 2 - Lecture 2 Accounting for Corporate Finance:...

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