Chapter 5 notes - -The balance sheet provides information...

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--The balance sheet provides information about the nature and amounts of investments in enterprise resources, obligations to creditors, and the owners' equity in net resources. --The balance sheet helps in predicting the amounts, timing and uncertainty of future cash flows. Usefulness of the Balance Sheet --Analysts use the balance sheet to assess a company's liquidity, solvency and financial flexibility. --Liquidity describes the amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until a liability has to be paid. --The greater the liquidity, the lower its risk of failure. --Solvency refers to the ability of a company to pay its debts as they mature. --Financial flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities. Limitations of the Balance Sheet --Most assets and liabilities are reported at historical cost. --Companies use judgments and estimates to determine many of the items reported in the balance sheet. --The balance sheet necessarily omits items that are of financial value but that a company cannot record objectively. (Knowledge and skill of employees) Current Assets --Current assets are cash and other assets a company expects to convert into cash, sell, or
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This note was uploaded on 02/12/2012 for the course BT 1003 taught by Professor As during the Spring '11 term at American Jewish University.

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Chapter 5 notes - -The balance sheet provides information...

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