1. 7 7 C h a p t e r Earnings and Cash Flow Analysis second edition Fundamentals of Investments Valuation & Management Charles J. Corrado Bradford D. Jordan McGraw Hill / IrwinSlides by Yee-Tien (Ted) Fu

2.  2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw Hill / Irwin 3 - 2 The scope of the chapter Our goal in this chapter is to valuate common stock through analysis of earnings and cash flow. In particular, on earning and cash flow forecasting. Goal  You need to:  Understand financial accounting concepts,  Understand busic financial statements, and  Perform earning and cash flow analysis using these financial statements.

3.  2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw Hill / Irwin 3 - 3 Concepts  EDGAR: electronic archive of company filings with the SEC.  10K: annual company report filed with the SEC.  10Q: quarterly updates of 10K reports filed with the SEC.  Regulation FD: requires companies making a public disclosure of material nonpublic information to do so fairly without preferential recipients.

4.  2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw Hill / Irwin 3 - 4 Concepts  Balance sheet: accounting statement that provides a snapshot view of a company's assets and liabilities on a particular date. Income statement: summary statement of a firm's revenues and expenses over a specific accounting period, usually a quarter or a year.  Cash flow statement: analysis of a firm's sources and uses of cash over the accounting period, summarizing operating, investing, and financing cash flows.  Asset: anything a company owns that has value.  Liability: a firm's financial obligation.  Equity: an ownership interest in the company.

5.  2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw Hill / Irwin 3 - 5 Concepts Income: the difference between a company's revenues and expenses used to pay dividends to stockholders or kept as retained earnings within the company to finance future growth. Cash flow: income realized in cash form. Non cash items: income and expense items not realized in cash form. Operating cash flow : cash generated by a firm's normal business operations

6.  2002 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw Hill / Irwin 3 - 6 Concepts  Investment cash flow: cash flow resulting from purchases and sales of fixed assets and investments.  Financing cash flow: cash flow originating from the issuance or repurchase of securities and the payment of dividends.  Return on assets: net income stated as a percentage of total assets.  Return on equity: net income stated as a percentage of stockholder equity.