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Chapter No 2
Financial Statements,
Taxes,
and Cash Flow
1-2 2-2
1-3 2-3
Chapter Outline
1-4 2-4
Definitions
Balance sheet provides a snapshot of a firms
financial position at one point in time.
Income statement summarizes a firms
revenues and expenses over a given period of
time.
Statement of retained earnings shows how
much of the firms earnings were retained, rather
than paid out as dividends.
Statement of cash flows reports the impact of a
firms activities on cash flows over a given period
of time.
4
1-5 2-5
1-6 2-6
Figure 2.1
1-7 2-7
1-8 2-8
1-9 2-9
Klingon Corporation
KLINGON CORPORATION
Balance Sheets
Market Value versus Book Value
Book
Market
Assets
NWC
NFA
$ 400
700
1,100
Book
Market
$ 500
$ 500
600
1,100
1,100
1,600
9
Income Statement
1-10
2-10
1-11
2-11
11
1-12
2-12
Taxes
1-13
2-13
1-14
2-14
1-15
2-15
15
CFFA
1-16
2-16
16
1-17
2-17
1-18
2-18
Table 2.5
18
1-19
2-19
1-20
2-20
1-21
2-21
Comprehensive Problem
Current Accounts
2007: CA = $4,400; CL = $1,500
2006: CA = $3,500; CL = $1,200
Income Statement
EBIT = $2,000; Taxes = $300
Interest Expense = $350; Dividends = $500