Chapter 2 Financial Statements And Cash Flow Analysis. Professor XXXXX Course Name / Number. Financial Statements. Balance Sheet. Income Statement. Managers and Analysts Use Financial Statements to Conduct: - Cash Flow Analysis - Performance (Ratio) Analysis.
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Chapter 2Financial Statements And Cash Flow Analysis Professor XXXXX Course Name / Number
Financial Statements Balance Sheet Income Statement Managers and Analysts Use Financial Statements to Conduct: - Cash Flow Analysis - Performance (Ratio) Analysis
Four Key Financial Statements • Balance sheet 2. Income statement 3. Statement of retained earnings 4. Statement of cash flows
Decrease in any asset Increase in any liability Net profits after taxes Depreciation and other non-cash charges Sale of stock Increase in any asset Decrease in any liability Net loss Dividends paid Repurchase or retirement of stock The Sources and Uses of Corporate Cash Sources Uses
Accounting Profit vs. Cash Flow Accounting Profit based on accrual accounting—focus on past periods Finance emphasizes the importance of timing “You can’t deposit net income, only cash” Timing of cash flow matters. Accrual accounting may obscure timing. What are key measures of cash flow?
Key Measures of Cash Flow Cash Flow from Operations Total Cash Generated Operating Cash Flow Cash Flow Before Repaying Lenders Free Cash Flow Cash Flow Firm Could Distribute to Investors
Types Of Financial Ratios Liquidity Ratios Current Ratio Quick Ratio Activity Ratios Turnover Ratios Collection/Payment Period Debt Ratios Debt-to-Equity Ratio Times Interest Earned Ratio Profitability Ratios Gross Margin EPS Market Ratios P/E Ratio Market-to-Book Ratio
Financial Ratios For Cross-Sectional and Trend Analysis • Cross-Sectional Analysis: Comparing Different Firms’ Financial Ratios at the Same Point in Time • Compared to firms in same industry • Benchmarking - compares a company’s ratio values to those of competitors that company wishes to emulate • Trend Analysis - Performance Evaluation Over Time • Developing trends can be seen using multiyear comparison
Financial Statements and Financial Ratios Balance Sheet Income Statement Liquidity Ratios Activity Ratios Debt Ratios Profitability Ratios Market Ratios