Chapter_02 - Chapter 2 Chapter Introduction to the...

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Chapter 2 Chapter 2 Introduction to the Financial Statements
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Introduction to the Financial Statements Introduction to the Financial Statements How do accounting rules affect price-to- book ratios and price-earnings ratios?
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What Will You Learn from this Chapter What Will You Learn from this Chapter The broad picture of the firm that is painted by the financial statements The component parts of each financial statement How the financial statements fit together (or “articulate”). The accounting relations that govern the financial statements The stocks and flow equation that dictates how shareholders’ equity is updated The concept of dirty-surplus accounting The accounting principles that dictate how the balance sheet is measured How price-to-book ratios are affected by accounting principles The accounting principles that dictate how earnings are measured How price-earnings ratios are affected by accounting principles The difference between market value added and earnings Why fundamental analysts want accountants to enforce the reliability criterion How financial statements anchor investors
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Distinguishing Form from Content in Distinguishing Form from Content in Financial Statements Financial Statements Form is the way in which the statements and their components parts fit together. Content is the measurement of the line items that are reported within the component parts of financial statements. The form gives the overall story that the statements are telling. The content puts numbers into the story.
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The Four Financial Statements The Four Financial Statements 1. Balance Sheet 1. Income Statement 3. Cash Flow Statement 4. Statement of Shareholders’ Equity
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The Balance Sheet: Dell Computer, 2002 The Balance Sheet: Dell Computer, 2002 Shareholders’ Equity = Assets - Liabilities February 1, February 2, 2002 2001 ------------- ------------- ASSETS Current assets : Cash and cash equivalents $ 3,641 $ 4,910 Short-term investments 273 525 Accounts receivable, net 2,269 2,424 Inventories 278 400 Other 1,416 1,467 ------ ------ Total current assets 7,877 9,726 Property, plant and equipment, 826 996 net Investments 4,373 2,418 Other non-current assets 459 530 ------ ------ Total assets $ 13,535 $ 13,670 ------ ------ LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities : Accounts payable $ 5,075 $ 4,286 Accrued and other 2,444 2,492 ------ ------ Total current liabilities 7,519 6,778 Long-term debt 520 509 Other 802 761 Commitments and contingent - - liabilities (Note 7) ------ ------ Total liabilities 8,841 8,048 ------ ------ Stockholders equity: Preferred stock and capital in - - excess of $.01 par value; shares issued and outstanding: none Common stock and capital in 5,605 4,795 excess of $.01 par value; shares authorized: 7,000; shares issued: 2,654 and 2,601, respectively Treasury stock, at cost; 52 (2,249) - shares and no shares, respectively Retained earnings 1,364 839 Other comprehensive income
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This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

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Chapter_02 - Chapter 2 Chapter Introduction to the...

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