Financial analysis and planning

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Chapter 1 Financial Statements

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Financial analysis and planning

INCOME STATEMENT Major device for measuring

The statement is presented in a stair-step

Stockholders equity minus the preferred stock components represents the net worth or book value

Marketable securities are temporary investments of cash

Asset accounts are listed in order of liquidity

Total assets are financed through either liabilities or stockholders equity

Topic Plant and equipment is carried at original cost minus accomulated depreciation

Economist defines income as the change in real worth in a specified time period

Subtopic

Prepaid expenses represent future expense items

Inventory may he in the form of raw material, godos in process or finished goods

The value shown in the account is the fair market value

Statement of cash flows

Emphasize the critical nature of cash flows operations of the firm

Balance sheet indicates what the firm owns and how the asset are financed

Investments represents a longer-term commitment of funds

PRICE-EARNINGS RATIO

The P/E ratio indicates expectations of the future company

This determine current value of the common stock