Chap002 - Chapter 2 Financial Statements, Taxes, and Cash...

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Unformatted text preview: Chapter 2 Financial Statements, Taxes, and Cash Flow 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 firms cash flow from its financial statements 2-2 Chapter Outline The Balance Sheet The Income Statement Taxes Cash Flow 2-3 Balance Sheet The balance sheet is a snapshot of the firms 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 2-4 The Balance Sheet - Figure 2.1 2-5 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 typically earn a lower return Trade-off to find balance between liquid and illiquid assets 2-6 US Corporation Balance Sheet Table 2.1 Place Table 2.1 (US Corp Balance Sheet) here 2-7 Market Value vs. Book Market Value vs....
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This note was uploaded on 06/06/2011 for the course FSMA 315 taught by Professor Chengruhu during the Spring '11 term at SUNY Canton.

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Chap002 - Chapter 2 Financial Statements, Taxes, and Cash...

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