Transcription of CHAPTER 3 UNDERSTANDING FINANCIAL STATEMENTS
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CHAPTER 3 UNDERSTANDING FINANCIAL STATEMENTS
11 CHAPTER 3 UNDERSTANDING FINANCIAL STATEMENTSF inancial STATEMENTS provide the fundamental information that we use to analyze andanswer valuation questions. It is important, therefore, that we understand the principlesgoverning these STATEMENTS by looking at four questions: How valuable are the assets of a firm? The assets of a firm can come in several forms assets with long lives such as land and buildings, assets with shorter lives suchinventory, and intangible assets that still produce revenues for the firm such as patentsand trademarks. How did the firm raise the funds to finance these assets? In acquiring these assets, firmscan use the funds of the owners (equity) or borrowed money ( debt ), and the mix islikely to change as the assets age.
Debt Equity Short-term liabilities of the firm Intangible Assets Long Lived Real Assets ... Equity investment in firm Debt obligations of firm Current Liabilties Other Liabilities Other long-term obligations Figure 3.1: The Balance Sheet The next is the income statement , shown in Figure 3.2, which provides information on the ... While that is ...
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