Creditorordebtfinancing examplesofcompanyfinancing

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Unformatted text preview: at a company uses to produce and sell its products and services. The investing resources, or assets, are of two types Operating assets—resources devoted to operating activities Nonoperating (financial) assets—resources devoted to nonoperating activities Breakdown of Operating and Breakdown of Operating and Financial Assets The Accounting Equation The Accounting Equation Operating Activities Operating Activities Operating activities are the use of company resources to produce, promote, and sell its products and services. Operating Revenues (or sales) ­ the inflow of assets from selling products and services. Operating Expenses (or costs) ­ the outflow of assets to support operating revenues Operating Income = Operating Revenues – Operating Expenses Defining Company Value Defining Company Value Most owners and nonowners formalize their claims on a company in the form of a contract or a security. Equity securities are common for owners and bonds (notes) are common for nonowners. These securities are traded in capital markets. Value of Company = Value of Nonowner Claims + Value of Owner Claims The Financial Statements The Financial Statements Balance Sheet – assets, liabilities and equity at one point in time Income Statement – revenues, expenses, and profit over a period of time Statement of Equity – changes in contributed and earned capital Statement of Cash Flows – net cash inflows (outflows) form operating, investing and financing activities Financial Statements Financial Statements Balance Sheet Balance Sheet A balance sheet reports on investing and financing activities. It lists amounts for assets, liabilities, and equity as of a point in time. The accounting equation (also called the balance sheet equation) is the basis of the balance sheet: Assets = Liabilities + Equity Berkshire Hathaway’s Balance Sheet Berkshire Hathaway’s Balance Sheet Income Statement Income Statement An income statement reports on operating activities. It lists amounts for sales (and revenues) less all expenses (and costs) over a period of time. Sales less expenses yield the “bottom­line” net income amount. Berkshire Hathaway’s Berkshire Hathaway’s Income Statement Statement of Equity Statement of Equity The statement of equity reports on changes in the accounts that makeup equity Contributed capital Earned capital (retained earnings and accumulated other comprehensive income) This statement is useful in identifying and analyzing reasons for changes in owners’ claims on a company’s assets. Berkshire Hathaway’s Berkshire Hathaway Statement of Stockholders’ Equity Statement of Cash Flows Statement of Cash Flows The statement of cash flows reports on cash flows for operating, investing, and financing activities over a period of time. Financial Financial Statement Linkages Information Beyond Financial Information Beyond Financial Statements Management Discussion and Analysis (MD&A) Independent Auditor Report Financial Statement Footnotes Regulatory Filings and Proxy Statements Buffet on MD&A Buffet on MD&A Economics of Accounting Economics of Accounting Information: Demand & Supply Demand for financial accounting infor...
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