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Financial statements and cash flow - Coggle Diagram
Financial statements and cash flow
financial statements evaluate performance of company
similar to academic performance and transcript
Financials
publically traded companies report financials to share holders and public
Standard Rules: Generally accepted accounting principles(GAAP)
IFRS: used world wide --> currently converging together
Difference between financiers and accountants
main difference between these income
accurals
short term accruals
example: sells $100 of goods on credit at year 1
Fina
long term accrual
Deprication: allocation of cost of an asset over a period of time
Why use cash flow?
MISSING INFORMATION
What is cash flow
generated by firm and paid ot creditors and sharehodlers
net income is not cash flow
Classification: CF from operations, CF from change in fixed assets, CF from change in net working capital
Operating Cash Flow = EBIT + Depreciation - taxes
usually positive
total/free cash flow:
TCD = FCF = Cash flow fro assets
FCF: cash flow to financial debt and equity
cash that the firm is free to distribute to creditors and stockholders
net working capital
decrease in net working capital is increase in inflow
10-k 10-q
annual
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SEC Data
Website: EDGAR
all the filings of companies
Two sets of books
corporations must provide computation fo profit or loss to both stock holders and tax authorities
US firms keep two sets of books
one for IRS
annual reports- stock holder's books
Fiscal Year: period used for calculating annual financial statements
usually Jan 1 to Dec 31
Cannot be changed
Can be strategic: farmers end after harvest season; others end shortly after Christmas season
Balance Sheet
Assets = liabilities + stockholder's equity
Assets: current + fixed
Liabilites: MISSING INFORMATION
Balance sheet is ordered by best liquidity to worst
how quickly you can convert assets to cash without significant loss in value
more liquid- less likely the firm experiences problems meeting short term obligations
liquid assets ahve lower rates of return than fixed assets
fixed assets generate profit; must genrate some current assets but not too much
Debt VS Equity
Debt: aka liability
creditors receive first claim on cash flow
bondholders can ue firm if firm defaults
Equity: sharejolder equity residual between asssets and liabilites
Comparing values
book value ? market
market lost confidence;
market value > book value
market assigns higher value MISSING INFORMATION