Fin 390 Chapt 2 - Chapter 2 Financial Statements Taxes and...

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Chapter 2 Financial Statements, Taxes, and Cash Flow
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Chapter Outline The Balance Sheet The Income Statement Taxes Cash Flow 2-2
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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 firm’s cash flow from its financial statements 2-3
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Balance Sheet The balance sheet is a snapshot of the firm’s 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
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The Balance Sheet 2-5
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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
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US Corporation Balance Sheet Place Table 2.1 (US Corp Balance Sheet) here 2-7
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The balance sheet provides the book value of the assets, liabilities, and equity. Market value is the price at which the assets, liabilities ,or equity can actually be bought or sold. Market value and book value are often very
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This note was uploaded on 02/06/2012 for the course FINANCE 390 taught by Professor Zhang during the Spring '11 term at Metro State.

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Fin 390 Chapt 2 - Chapter 2 Financial Statements Taxes and...

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