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    Chap 002

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    sueern
    The balance sheet is a snapshot of the firm's assets and liabilities at a given point in time. The income statement is more like a video of a firm's operations for a specified period of time. What is the difference between accounting income and cash flow? which do we need to use when making decisions?

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    Chap 002

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    sueern
    137 views15 pages
    The balance sheet is a snapshot of the firm's assets and liabilities at a given point in time. The income statement is more like a video of a firm's operations for a specified period of time. What is the difference between accounting income and cash flow? which do we need to use when making decisions?

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    The balance sheet is a snapshot of the firm's assets and liabilities at a given point in time. The income statement is more like a video of a firm's operations for a specified period of time. What is the difference between accounting income and cash flow? which do we need to use when making decisions?

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    137 views15 pages

    Chap 002

    Uploaded by

    sueern
    The balance sheet is a snapshot of the firm's assets and liabilities at a given point in time. The income statement is more like a video of a firm's operations for a specified period of time. What is the difference between accounting income and cash flow? which do we need to use when making decisions?

    Copyright:

    Attribution Non-Commercial (BY-NC)
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    You are on page 1of 15

    Chapter 2

    Financial
    Statements, Taxes,
    and Cash Flow

    1
    McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
    1-2 2-2

    Chapter Outline
    • The Balance Sheet
    • The Income Statement
    • Taxes
    • Cash Flow

    2
    1-3 2-3

    The Balance Sheet


    • The balance sheet is a snapshot of the firm’s
    assets and liabilities at a given point in time
    – Assets: things the firm owns-Fixed and Current
    – Liabilities: Long-term and current debts
    – Owner’s Equity: Paid-up capital and Retained Earnings
    • Assets are listed in order of liquidity
    – Ease of conversion to cash
    – Without significant loss of value
    • Balance Sheet Identity
    – Assets = Liabilities + Stockholders’ Equity

    3
    1-4 2-4

    Figure 2.1

    4
    1-5 2-5

    U.S. Corporation Balance Sheet –


    Table 2.1

    5
    1-6 2-6

    Market vs. Book Value


    • The balance sheet provides the book
    value of the assets, liabilities, and
    equity.
    • Market value is the price at which the
    assets, liabilities, or equity can actually
    be bought or sold.
    • Which is more important to the
    decision-making process?
    6
    1-7 2-7

    Income Statement
    • The income statement is more like a
    video of the firm’s operations for a
    specified period of time
    • You generally report revenues first and
    then deduct any expenses for the period
    • Matching principle – GAAP says to
    recognize revenue when it is fully earned
    and match expenses required to
    generate revenue to the period of
    recognition
    7
    1-8 2-8

    U.S. Corporation Income Statement


    - Table 2.2

    8
    1-9 2-9

    Taxes
    • Marginal vs. average tax rates
    – Marginal – the percentage paid on the next
    dollar earned
    – Average – the tax bill / taxable income
    • In Malaysia, corporate tax rate is flat:
    – 2007: 27%
    – 2008: 26%
    – 2009: 25%

    9
    2-10
    1-10

    The Concept of Cash Flow


    • Cash flow is one of the most important
    pieces of information that a financial manager
    can derive from financial statements
    • The statement of cash flows does not provide
    us with the same information that we are
    looking at here
    • We will look at how cash is generated from
    utilizing assets and how it is paid to those
    that finance the purchase of the assets

    10
    2-11
    1-11

    Table 2.5

    11
    2-12
    1-12

    Example: US Corporation

    12
    2-13
    1-13

    Example: US Corporation

    13
    2-14
    1-14

    Quick Quiz
    • What is the difference between book
    value and market value? Which
    should we use for decision making
    purposes?
    • What is the difference between
    accounting income and cash flow?
    Which do we need to use when making
    decisions?
    • What are the cash flows equations and
    where do we find the information?
    14
    2-15
    1-15

    Tutorial
    • Problem 14 of page 46
    • Problem 22 of page 47

    15

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