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1、Chapter Outline,2.1 The Balance Sheet 2.2 The Income Statement 2.3 Net Working Capital 2.4 Financial Cash Flow 2.5 Summary and Conclusions,Sources of Information,2.1 The Balance Sheet,An accountants snapshot of the firms accounting value as of a particular date. The Balance Sheet Identity is:,When a
2、nalyzing a balance sheet, the financial manager should be aware of three concerns: accounting liquidity, debt versus equity, and value versus cost.,The Balance Sheet of the U.S. Composite Corporation,Liabilities (Debt),Assets,20X2,20X1,and Stockholders Equity,20X2,20X1,Current assets:,Current Liabil
3、ities:,Cash and equivalents,$140,$107,Accounts payable,$213,$197,Accounts receivable,294,270,Notes payable,50,53,Inventories,269,280,Accrued expenses,223,205,Other,58,50,Total current liabilities,$486,$455,Total current assets,$761,$707,Long-term liabilities:,Fixed assets:,Deferred taxes,$117,$104,P
4、roperty, plant, and equipment,$1,423,$1,274,Long-term debt,471,458,Less accumulated depreciation,-550,-460,Total long-term liabilities,$588,$562,Net property, plant, and equipment,873,814,Intangible assets and other,245,221,Stockholders equity:,Total fixed assets,$1,118,$1,035,Preferred stock,$39,$3
5、9,Common stock ($1 per value),55,32,Capital surplus,347,327,Accumulated retained earnings,390,347,Less treasury stock,-26,-20,Total equity,$805,$725,Total assets,$1,879,$1,742,Total liabilities and stockholders equity,$1,879,$1,742,The assets are listed in order by the length of time it normally wou
6、ld take a firm with ongoing operations to convert them into cash. Clearly, cash is much more liquid than property, plant and equipment.,Balance Sheet Analysis,When analyzing a balance sheet, the financial manager should be aware of three concerns: Accounting liquidity Debt versus equity Value versus
7、 cost,Accounting Liquidity,Refers to the ease and quickness with which assets can be converted to cash. Current assets are the most liquid. Some fixed assets are intangible. The more liquid a firms assets, the less likely the firm is to experience problems meeting short-term obligations. Liquid asse
8、ts frequently have lower rates of return than fixed assets.,Debt versus Equity,Generally, when a firm borrows it gives the bondholders first claim on the firms cash flow. Thus shareholders equity is the residual difference between assets and liabilities.,Value versus Cost,Under GAAP audited financia
9、l statements of firms in the U.S. carry assets at cost. Market value is a completely different concept.,2.2 The Income Statement,The income statement measures performance over a specific period of time. The accounting definition of income is,U.S.C.C. Income Statement,(in $ millions),20X2,Income Stat
10、ement,U.S. COMPOSITE CORPORATION,Total operating revenues,Cost of goods sold,Selling, general, and administrative expenses,Depreciation,Operating income,Other income,Earnings before interest and taxes,Interest expense,Pretax income,Taxes,Current: $71,Deferred: $13,Net income,Retained earnings: $43,D
11、ividends: $43,The operations section of the income statement reports the firms revenues and expenses from principal operations,$2,262,- 1,655,- 327,- 90,$190,29,$219,- 49,$170,- 84,$86,(in $ millions),20X2,Income Statement,U.S. COMPOSITE CORPORATION,Total operating revenues,$2,262,Cost of goods sold
12、,- 1,655,Selling, general, and administrative expenses,- 327,Depreciation,- 90,Operating income,$190,Other income,29,Earnings before interest and taxes,$219,Interest expense,- 49,Pretax income,$170,Taxes,- 84,Current: $71,Deferred: $13,Net income,$86,Retained earnings: $43,Dividends: $43,The non-ope
13、rating section of the income statement includes all financing costs, such as interest expense.,U.S.C.C. Income Statement,(in $ millions),20X2,Income Statement,U.S. COMPOSITE CORPORATION,Total operating revenues,Cost of goods sold,Selling, general, and administrative expenses,Depreciation,Operating i
14、ncome,Other income,Earnings before interest and taxes,Interest expense,Pretax income,Taxes,Current: $71,Deferred: $13,Net income,Retained earnings: $43,Dividends: $43,Usually a separate section reports as a separate item the amount of taxes levied on income.,$2,262,- 1,655,- 327,- 90,$190,29,$219,-
15、49,$170,- 84,$86,U.S.C.C. Income Statement,(in $ millions),20 x2,Income Statement,U.S. COMPOSITE CORPORATION,Total operating revenues,Cost of goods sold,Selling, general, and administrative expenses,Depreciation,Operating income,Other income,Earnings before interest and taxes,Interest expense,Pretax
16、 income,Taxes,Current: $71,Deferred: $13,Net income,Retained earnings: $43,Dividends: $43,Net income is the “bottom line”.,$2,262,- 1,655,- 327,- 90,$190,29,$219,- 49,$170,- 84,$86,U.S.C.C. Income Statement,Income Statement Analysis,There are three things to keep in mind when analyzing an income statement: GAAP Non Cash Items Time
