Viewing the Business through the Financial Statements
Viewing the Business through the Financial Statements
After reading this chapter you should understand:
How businesses are set up to generate value.
How the financial statements are organized to reveal
value added for shareholders.
Why reformatting financial statements is necessary for
analysis.
How operating, investing, and financing activities are
depicted in reformatted financial statements.
The four types of cash flows in a business and how they
relate to each other.
How reformulated statements tie together as a set of
stocks and flows.
What operating activities involve.
What financing activities involve.
What determines dividends.
What determines free cash flow.
How free cash flow is disbursed.
Why free cash flow is a dividend from operating activities
to the financing activities.
Why free cash flow does not affect the accounting for
value added.
After reading this chapter you should be able to:
Apply the treasurer's rule.
Lay out the form of reformulated cash flow statements,
balance sheets, and income statements.
Explain how net operating assets change over time.
Explain how net financial obligations change over time.
Explain how free cash flow is generated.
Explain how free cash flow is disposed of.
Add new accounting relations to your set of analyst's
tools.
Calculate return on net operating assets and net
borrowing cost from reformulated statements.
Build an elementary spreadsheet that sets you up for analyzing
the value generation of a business. This spreadsheet
can be embellished as you proceed through the
rest of the book.
