1. Ch. 2: Financial Statements, Taxes, and Cash Flow
Contents
Balance Sheet (p. 26)
Income Statement (p. 29)
Taxes
Cash Flow

2. The Balance Sheet see Table 2.1, p. 26 balance sheet identity
liquidity
debt versus equity, financial leverage
market value versus book value

3. The Income Statement see Table 2.2, p. 29
earnings before interest and taxes (EBIT)
net income, EPS, DPS
accrual accounting, matching principle
noncash items

4. Taxes
many types: federal, state, local; income, capital gains, property, sales
focus on federal corporate income tax
deductibles versus credits
average versus marginal rates
assume 35 percent

5. Cash Flow cash flow identity cash flow from assets
operating cash flow
capital spending
change in net working capital
cash flow to creditors
cash flow to stockholders

6. Recommended Practice Self-Test Problem 2.1, pp. 41-3
Questions 4-9, p. 43
Problems on pp. 44-6: 5, 6, 7, 9, 11-13, 19, 21 (most answers are on p. 547)