Finance School of Management Chapter 3: Interpreting Financial statements Objective Contrast economic and Accounting Models Value of Accounting Information ue sTc
1 Finance School of Management Chapter 3: Interpreting Financial Statements Objective Contrast Economic and Accounting Models Value of Accounting Information
Finance School of Management Chapter 3 Contents Review of financial The relation Among Statements Ratios Market values v book Limitations of ratio Values Analysis Accounting v economic Purpose and process of Measures of income Financial Planning Return on Shareholders v. Managing Working Return on Equity Capital Analysis Using Financial Ratios uesTc
2 Finance School of Management Chapter 3 Contents ❖ Review of Financial Statements ❖ Market Values v. Book Values ❖ Accounting v. Economic Measures of Income ❖ Return on Shareholders v. Return on Equity ❖ Analysis Using Financial Ratios ❖ The Relation Among Ratios ❖ Limitations of Ratio Analysis ❖ Purpose and Process of Financial Planning ❖ Managing Working Capital
Finance School of Management Review of financial statements Financial Statements Provide information (clues) to the owners creditors of a firm about the current status and past performance. Provide a convenient way for owners creditors to set performance targets to impose restrictions on the managers of the firm. Provide a convenient templates for financial planning. uesTc
3 Finance School of Management Review of Financial Statements ❖ Financial Statements – Provide information (clues) to the owners & creditors of a firm about the current status and past performance. – Provide a convenient way for owners & creditors to set performance targets & to impose restrictions on the managers of the firm. – Provide a convenient templates for financial planning
Finance School of Management The Balance sheet Summarizing a firms assets(what it owns), liabilities(what it owes), and net worth(owners equity) at a moment in time Amounts measured at historical values(acquisition cost)and historical exchange rates. Prepared according to GAAP (Generally accepted Accounting Principles) Exchange-listed companies must comply with SEC (Securities and Exchange commission)rules. uesTc
4 Finance School of Management The Balance Sheet ❖ Summarizing a firm’s assets (what it owns), liabilities (what it owes), and net worth (owners’ equity) at a moment in time. – Amounts measured at historical values (acquisition cost) and historical exchange rates. – Prepared according to GAAP (Generally Accepted Accounting Principles). – Exchange-listed companies must comply with SEC (Securities and Exchange Commission) rules
Finance School of Management The Balance sheet Major divisions Assets Current assets(less than a year) Long-term assets (longer than a year) Depreciation Liabilities and stockholder's equity Liabilities Current liabilities Net Working Capital=Current Assets-Liabilities Long-term debt equity uesTc
5 Finance School of Management ❖ Major Divisions – Assets ✓ Current assets (less than a year) ✓ Long-term assets (longer than a year) – Depreciation – Liabilities and Stockholder’s Equity ✓ Liabilities – Current Liabilities Net Working Capital = Current Assets - Liabilities – Long-term debt ✓ Equity The Balance Sheet