Chapter 3, financial statements, cash flows, and taxes. In this chapter, we examine fi nancial statements, taxes, and cash flow. The goal of this chapter is to briefl y examine such statements and point out some of their more relevant features. This chapter pay special attention to some of the practical details of cash flow. | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 3: Financial Statements, Cash Flows, and Taxes NEED TO UPDATE PHOTO Copyright© 2015 John Wiley & Sons, Inc. 2 Learning Objectives Discuss generally accepted accounting principles (GAAP) and their importance to the economy Explain the balance sheet identity and why a balance sheet must balance Describe how market-value balance sheets differ from book-value balance sheets Identify the basic equation for the income statement and the information it provides Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Understand the calculation of cash flows from operating, investing, and financing activities required in the statement of cash flows Explain how the four major financial statements discussed in this chapter are related Identify the cash flow to a firm’s investors using its financial statements Discuss the difference between average and marginal tax rates Copyright© 2015 John Wiley & Sons, Inc. 4 The Purpose of Financial Statements Financial Statements provide stakeholders with a foundation for evaluating the financial health of a firm. Stakeholders include: Employees Management Stockholders Regulators Suppliers General Public Customers Creditors The Purpose of Financial Statements Evaluate a firm’s internal environment Efficiency, effectiveness, and risk level Evaluate a firm’s interaction with the external environment Corporate citizenship Social responsibility Assessment of the external environment Response to the external environment Provide information about the performance of the firm Stakeholders want to compare actual vs. potential performance Financial Statements & Accounting Principles Generally Accepted Accounting Principles (GAAP) Accounting rules and standards that public companies must adhere to when they prepare financial statements and reports Established by the Financial Accounting . | Fundamentals of Corporate Finance, 3/e Robert Parrino, . David S. Kidwell, . Thomas W. Bates, . 1 Copyright© 2015 John Wiley & Sons, Inc. Chapter 3: Financial Statements, Cash Flows, and Taxes NEED TO UPDATE PHOTO Copyright© 2015 John Wiley & Sons, Inc. 2 Learning Objectives Discuss generally accepted accounting principles (GAAP) and their importance to the economy Explain the balance sheet identity and why a balance sheet must balance Describe how market-value balance sheets differ from book-value balance sheets Identify the basic equation for the income statement and the information it provides Copyright© 2015 John Wiley & Sons, Inc. 3 Learning Objectives Understand the calculation of cash flows from operating, investing, and financing activities required in the statement of cash flows Explain how the four major financial statements discussed in this chapter are related Identify the cash flow to a firm’s investors using its financial statements Discuss the difference .
