BCOR 2200 Chapter 2 w cq

BCOR 2200 Chapter 2 w cq - Chapter2 FinancialStatements,...

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Chapter 2 Financial Statements, Taxes and Cash Flows 1
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Chapter Outline 2.1  The Balance Sheet 2.2  The Income Statement 2.3  Taxes 2.4  Cash Flows 2
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Key Concepts and Skills Know the difference between book value  and market value Know the difference between accounting  income and cash flow Know the difference between average and  marginal tax rates Know how to determine a firm’s cash flow  from its financial statements 3
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2.1 Balance Sheet Assets are listed from Most Liquid  to Least Liquid What does liquid mean? “Net Fixed Assets” is Book Value (LOCOM) net of Accumulated  Depreciation Assets = Liabilities + OE   OE = Assets - Liabilities 4
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5 Balance Sheet (Continued 1) The balance sheet is a “snap-shot” What does the company  own  today?   What does the company  owe  today? How much is left for the owners? called the  residual The  LEFT SIDE  shows what assets are  employed by the firm to do what it does Cash, Inventory, Factories, Machines, Trucks… The  RIGHT SIDE  shows how it paid for the  assets How much is borrowed and for how long How much is left for the owners Note:  Owner’s Equity is not how much the  owners contributed.  It is the current  residual  value .
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6 Balance Sheet (Continued 2) Debt is also called  Financial Leverage Given the equity, what value of assets are employed? Put up $1m, borrow $1m, Employ $2m in assets Put up $1m, borrow $2m, Employ $3m in assets Market Value vs. Book Value:   1.Market Value of  Assets  vs. Book Value of  Assets GAAP: LOCOM Coors in Golden: Land is on books at cost But what is the market value of that land? 2.Market Value of  Equity  vs. Book Value of  Equity Book Value of Equity = Book Value of Assets – Liabilities Market Value of Equity = # of Shares x Price per Share What would account for the difference between book and  market? What kind of companies have a relatively high BM?  Low  BM?
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7 Clicker Question: A firm’s balance sheet shows $50 million in Total  Assets and $30 million Total Debt The firm has 1,000,000 shares of stock  outstanding at a price of $25 per share Which of the following is true? A. Book Value Equity is greater than Market Value of  Equity B. Market Value Equity is greater than Book Value of  Equity C. Book Value Equity equals Market Value of Equity D. There is not enough information to tell.
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8 Clicker Answer: Book Value of Equity = Book value of Assets - Book Value  of Debt
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This note was uploaded on 12/06/2010 for the course BCOR 2200 at Colorado.

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BCOR 2200 Chapter 2 w cq - Chapter2 FinancialStatements,...

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