MGNT3125_chapter3_notes

MGNT3125_chapter3_notes - MGNT3125 Fall 2010 Dr. Amine...

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MGNT3125 Fall 2010 Dr. Amine Khayati Chapter 3 Notes I- Financial Statements and reports: - The annual report: a report issued annually by a corporation to its stockholders. It contains basic financial statements as well as management’s analysis of the firm’s past operations and future prospects. - The Balance sheet: shows what assets the company owns and who has claims on those assets as of a given date. - The income statement: shows the firm’s sales and costs during some past period. - The statement of cash flows: shows how much cash the firm began the year with, how much cash it ended up with, and what it did to increase or decrease its cash. - The statement of stockholders’ equity: presents the amount of equity the stockholders had at the start of the year, the items that increased or decreased equity, and the equity at the end of the year. II- Balance Sheet : is a snapshot of the firm accounting value (book value) as of a particular date. - Assets are items that the firm owns, they can be tangible (ex: machinery) or intangible (ex: patent) - Liabilities are amounts owed by the firm to others ex: long-term debt, notes payable… - Owner’s equity is the shareholder’s equity also called common equity. Assets = Liabilities + shareholders’ equity Shareholders’ equity = Assets – Liabilities Shareholders’ equity = Paid-in capital + Retained earnings - Items on the balance sheet are listed in order of decreasing liquidity, the most liquid are listed first. Liquidity : of an asset is measured by the speed with which it can be converted to cash without significant loss in value . - Liquidity is desirable since a firm can more safely meet short-term obligation (ex: pay creditors or buy needed inventory…) However, keeping a high liquidity level has an opportunity cost since that liquidity (ex: cash) can be invested into productive assets. The financial manager has
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This note was uploaded on 11/06/2010 for the course MGNT 3125 taught by Professor Warsi during the Spring '08 term at SPSU.

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MGNT3125_chapter3_notes - MGNT3125 Fall 2010 Dr. Amine...

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