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Chapter 2 part 3

Chapter 2 part 3 - II Security Selection C Financial...

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II. Security Selection C. Financial Statements and Free Cash Flow Accounting Information As outsiders, the most comprehensive information most stockholders can get about a company’s financial condition is from the information filed under the US securities acts of 1933 and 1934. Financial statements have four parts: (1) balance sheet, (2) income statement, (3) statement of cash flow, (4) statement of shareholders’ equity. Footnotes to these statements provide additional relevant information. Balance Sheet of ACME General Income Statement of ACME General ACME General Statement of Shareholders’ Equity Statement of Cash Flows for ACME General Calculating FCFF Top down approach Method 1: FCFF = NOPAT – change in operating capital NOPAT(2011) = NOWC(2011) = Cur Op Assets – Cur Op Liab = TOC(2011) = TOC(2010) = 3104.89 FCFF(2011) = NOPAT(2011) – Δ(TOC) = 72.52 m Calculating FCFF Method 2: FCFF = NOPAT + depreciation - capex - change in operating working capital FCFF = 351.97 + 225.62 -411.92 –(1128.11-1034.96)
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