MGMT_130_Lecture_2

MGMT_130_Lecture_2 - MGMT130Lecture2 CashFlows...

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MGMT 130 Lecture 2 Cash Flows
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What mattes to investors? At the end of the day, only one thing  matters: cash flow. Companies report balance sheets, income  statements, and statement of cash flows These are all just means at arriving at the  cash flow, or means to help estimate  future cash flows. Remember, the value of a company  comes directly from its discounted future  cash flows.
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Financial Statements Publicly traded companies must report  their financial statements every quarter. This information is easily available at  http://www.sec.gov/edgar/searchedgar/com More commonly, financial institutions will  pay large sums of money to access real- time databases that aggregate this  information.
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Balance Sheet Balance sheet shows current assets and  current liabilities For financial managers, there are three key  questions to ask the balance sheet: How liquid are our assets? What is the current debt/equity ratio for the  firm? What is the actual value (vs. cost) of the  assets? Accounting statements show costs, not  current market value! Why are these questions important?
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Liquidity – how quickly can our assets be  converted into cash? Helps us evaluate  probability of financial distress. Liquid assets are generally low-returning  assets. Why would a firm hold cash? Extra credit: 
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This note was uploaded on 04/25/2010 for the course MGMT 130A taught by Professor Stuff during the Winter '10 term at UCLA.

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MGMT_130_Lecture_2 - MGMT130Lecture2 CashFlows...

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