chap2 - Chapter 2 Financial Statements, Taxes, and Cash...

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FIN 3716 FIN 3716 Chapter 2 Chapter 2 Financial Statements, Taxes, and Cash Flows
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2-2 Key Concepts and Skills 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
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2-3 Chapter Outline Chapter Outline The Balance Sheet The Income Statement Taxes Cash Flow
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2-4 Balance Sheet Balance Sheet The balance sheet is a snapshot of the firm’s assets and liabilities at a given point in time Assets are listed in order of decreasing liquidity Ease of conversion to cash Without significant loss of value Balance Sheet Identity Assets = Liabilities + Stockholders’ Equity
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2-5 The Balance Sheet - Figure 2.1 The Balance Sheet - Figure 2.1
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2-6 Net Working Capital and Liquidity Net Working Capital and Liquidity 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 Liquidity Ability to convert to cash quickly without a significant loss in value Liquid firms are less likely to experience financial distress But liquid assets earn a lower return Trade-off to find balance between liquid and illiquid assets
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2-7 US Corporation Balance Sheet – Table US Corporation Balance Sheet – Table 2.1 2.1
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2-8 Market Vs. Book Value Market Vs. Book Value The balance sheet provides the book value of the assets, liabilities, and equity. Market value is the price at which the assets,
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This note was uploaded on 12/14/2010 for the course FIN 3716 taught by Professor Fang during the Fall '10 term at LSU.

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chap2 - Chapter 2 Financial Statements, Taxes, and Cash...

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