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Unformatted text preview: After reading this chapter, students should be able to: Briefly explain the history of accounting and financial statements, and how financial statements are used. List the types of information found in a corporations annual report. Explain what a balance sheet is, the information it provides, and how assets and claims on assets are arranged on a balance sheet. Explain what an income statement is and the information it provides. Specify the changes reported in a firms statement of retained earnings. Differentiate between net cash flow and accounting profit. Identify the purpose of the statement of cash flows, list the factors affecting a firms cash position that are reflected in this statement, and identify the three categories of activities that are separated out in this statement. Discuss how certain modifications to the accounting data are needed and used for corporate decision making and stock valuation purposes. In the process, explain the terms: net operating working capital, total investor-supplied operating capital, NOPAT, free cash flow, and operating cash flow; and explain how each is calculated. Define the terms Market Value Added (MVA) and Economic Value Added (EVA), explain how each is calculated, and differentiate between them. Explain why financial managers must be concerned with taxation, and list some of the most important elements of the current tax law, such as the differences between the treatment of dividends and interest paid and interest and dividend income received. Learning Objectives: 2 - 1 Chapter 2 Financial Statements, Cash Flow, and Taxes LEARNING OBJECTIVES The goal of financial management is to take actions that will maximize the value of a firms stock. These actions will show up, eventually, in the financial statements, so a general understanding of financial statements is critically important. This is the reason the Chapter 2 material is covered so early in the book. Note that Chapter 2 provides a bridge between accounting, which students have just covered, and financial management. Unfortunately, many non- accounting students did not learn as much as they should have in their accounting courses, so we find it necessary to spend more time on financial statements than we would like. Also, at Florida and many other schools, students vary greatly in their knowledge of accounting, with accounting majors being well-grounded because they have had more intense introductory courses and, more importantly, because they are taking advanced financial accounting concurrently with finance. This gives the accountants a major, and somewhat unfair, advantage over the others in dealing with Chapters 2 and 3 on exams....
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- Spring '11