12_Income Statement and Cash Flow Effects

12_Income Statement and Cash Flow Effects - Where have we...

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Where have we been… Operating, Financing & Investing business activity Introduce the Balance Sheet, Income Statement and Cash Flow Statement A=L+E NI=Revenue - Expenses + Gains - Losses ∆CA =∆L+∆E - ∆NCA Accrual Accounting framework Historic cost basis Revenue recognition Matching of Expenses Tools for analysis Lecture 9
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Where are we going… Add to depth of understanding of GAAP Work through select balance sheet accounts and explore related Income statement/Cash Flow effects A/R, Inventory, PP&E [Investing or Assets] Bonds, Leases, Taxes & Equity (Statement of Shareholder’s Equity) [Financing or Liabilities and Equity] Lecture 9
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ARCO Ltd. Income Statement For the years ending December 31 in thousands 2004 2003 Revenues 1,281,618 1,256,488 Cost of Goods Sold 776,510 753,893 Gross Margin 505,108 502,595 Selling, General & Administrative 315,278 314,122 Pre-tax Income 189,830 188,473 Taxes 75,932 75,389 Net Income 113,898 113,084
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Receivables GAAP requires use of estimates (e.g., uncollectible receivables) incentives influence management’s selection of an option? Lecture 9
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Earnings Quality Management’s reporting may not be a neutral representation of the firm (judgments & estimates) Analysis attempts to quantify and adjust for such bias These often referred to as “RED FLAGS”. The hope is that you become a sophisticated user of financial statements and avoid being misled! Lecture 9
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Lecture 9 Objectives 1. To understand the mechanics of Accounts Receivable and related accounts. 2. To understand the financial statement disclosure of receivables. 3. To reverse engineer the
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Lecture 9 Agenda 1. Accounts Receivable 2.
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