Inancmq verizon commu 45 40 35 30 25 20 2002 2008

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inancmq ---~-- .. "'- . -~-- . -~ VERIZON COMMUNICATIONS $55 $50 $45 $40 $35 $30 $25 ~~----~----~----~~----~--~$20 2002 2008 2010 2004 2006 (continued on next page) 7-2
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(continued from previous page) the principal and interest affect financial statements. We also discuss the required disclosures that enable us to effectivelr analyze a company's ability to pay its debts as they come due. Verizon is now working harder than ever to transform itself in an era of fiber optics and wireless communication. dilemma facing Seidenberg is how to allocate available cash flow between strategic investment and debt payments. Source: Verizon 2010 1O-K and Annual Report to Shareholders. O~ :DO G')c l>c: Zr- m N l> -t - o z 7-3 Pricing and Issuance Interest Expense Gains and Losses on Retirement i!lI Accounts Payable Accrued Liabilities Nonoperating Current Liabilities II Levels of Credit Ratings Criteria Used in Setting Ratings The accounting equation (Assets 5 Liabilities 1 Equity) is a useful tool in helping us think a how the balance sheet and income statement are constructed, the linkages among the financi statements, and the effects of transactions on financial statements. The accounting equation is useful in helping us think about the statements from another perspective, namely, how the b - ness is financed. Consider the following representation ofthe accounting equation: Assets = ~ Uses of funds = Liabilities + Equity I I I Sources offunds Assets represent investments (uses of funds) that management has made. It includes cu operating assets such as cash, accounts receivable, and inventories. It also includes long-te operating assets such as manufacturing and administrative facilities. Most companies als: invest a portion of funds in nonoperating assets (marketable securities) that provide the liquic- ity a company needs to conduct transactions and to react to market opportunities and changes Just as asset disclosures provide us with information on where a company invests its funds, - liability and equity disclosures inform us as to how those assets are financed. These are the sources funds. To be successful, a company must not only invest funds wisely, but must also be astute in manner in which it raises funds. Companies strive to finance their assets at the lowest possible Current liabilities (such as accounts payable and accrued liabilities) are generally non-interest-beer- ing. As a result, companies try to maximize the financing of their assets with these sources of ft.rnC:. Current liabilities, as the name implies, are short-term in nature, generally requiring payrn within the coming year. As a result, they are not a suitable source of funding for long-term as that generate cash flows over several years. Instead, companies often finance long-term as with long-term liabilities that require payments over several years. Generally, companies try link the pattern of the cash outflows of the financing source with the cash inflows of the relate asset. As such, long-term financing is usually in the form of bonds, notes, and stock issuances, When a company acquires assets, and finances them with liabilities,
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