6_Cost of Capital

6_Cost of Capital - Where have we been Operating, Financing...

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Where have we been… Introduce the Balance Sheet, Income Statement and Cash Flow Statement * A=L+E; Ending RE= Beg. RE + NI – Div Decl. * NI=Revenue - Expenses + Gains - Losses * ∆CA =∆L+∆E - ∆NCA Accrual Accounting framework * Historic cost basis * Objectives Introduce some Financial Statement Analysis tools and concepts Agenda MC 2 Cost of Capital User perspective Take-Aways Financial Statement Analysis Cost of capital - ? * A/P
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* Debt * Equity Implications?? Financial Stmt Analysis Depends on Goals of User Creditors (short-term): suppliers, banks, etc. Creditors (long-term): bondholders, employees, lessors, etc. Equity holders Will the expected Return compensate for the risk taken? Expected return estimated from evaluation of past performance and forecasted future performance. Where to begin: The Big Picture To be able to interpret any financial analysis – one needs context * Understanding the Economy (Inflation, interest rates, Growth) * The industry (economics, competition etc) * Firm’s strategy Financial Statement Analysis - some TOOLS Overview of F/S (Components, trends etc.) One needs to review the raw financial statements to appreciate what is there, large components, trends, etc.
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This note was uploaded on 10/17/2011 for the course MGMT 600 taught by Professor Johnston during the Spring '11 term at Purdue.

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6_Cost of Capital - Where have we been Operating, Financing...

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