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2 - Managerial Finance Prof Dr C Kalhoefer Department of...

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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 1 Managerial Finance Spring term 2011 - Lecture notes 2 Financial Statements and Analysis Prof. Dr. C. Kalhoefer Department of Finance
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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 2 Course Agenda “Managerial Finance” A. Introduction to Managerial Finance 1. The Role and Environment of Managerial Finance 2. Financial Statements and Analysis B. Important Financial Concepts 1. Time Value of Money 2. Risk and Return 3. Interest Rates and Bond Valuation C. Long-Term Financial Decisions 1. The Cost of Capital 2. Leverage and Capital Structure 3. Dividend Policy
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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 3 Financial Reporting Every corporation must prepare periodically reports of its financial activities, e.g. for regulators, creditors, owners, and management. Those reports are standardized Generally Accepted Accounting Principles (US-GAAP) in the United States International Financial Reporting Standards (IFRS) Local Principles Publicly owned corporations are required to provide their stockholders with an annual stockholders’ report
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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 4 The Stockholders’ Report Summarizes and documents the firm’s financial activities during the past year Consists of Letter to stockholders Income statement Balance sheet Statement of stockholders’ equity or statement of retained earnings Statement of cash flows The latter four build the key financial statements Notes to the financial statements give detailed information , e.g. accounting policies Procedures, Calculations
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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 5 The Key Financial Statements Income statement Provides a financial summary of the firm’s operating results Usually income statements cover a 1-year period In addition, monthly income statements are prepared by use of the management, and quarterly statements must be made available for stockholders of publicly owned corporations Balance Sheet Provides a summary statement of the firm’s financial position at a given point of time The statement balances the firm’s assets against its financing
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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 6 Key Financial Statements Statement of retained earnings Abbreviated form of the statement of stockholders’ equity (shows all equity account transactions that occurred during a given year) Reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings Statement of Cash Flows Provides a summary of the firm’s operating , investment , and financing cash flows Reconciles those with changes in its cash and marketable securities during the period
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Prof. Dr. C. Kalhoefer / Managerial Finance Spring 2011 / 2 - 7 Income Statement Income Statement 2006 2005 Sales revenue 3,074 2,567 Less: Cost of goods sold 2,088 1,711 Gross profits 986 856 Less: Operating expenses Selling expenses 100 108
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