Preview

Stock and Income Statement

Good Essays
Open Document
Open Document
841 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Stock and Income Statement
Nina Hyde
Dr. Novack
Corporate Finance
Practice Exam

1. The difference between earnings and cash flow is the firm’s earnings are the bottom line of their income statement and is a measure of the firm’s income over a given period of time. The cash flow of a firm shows how a firm has used the cash it earned during a set of time. There are two reasons that the income statement does not show the amount of cash earned. One, there are non-cash entries on the income statement and second, there are certain uses such as a purchase of a building that are not reported on the income statement. The statement of cash flows utilizes the information from the income statement and balance sheet to determine how much cash the firm has generated and how that cash has been allocated during a set period. 2. Shareholder wealth maximization is better objective than maximizing earnings for one, the total profits are not as important as earnings per share. A firm can always raise total profits by issuing stick and using the proceeds to invest. As well as maximizing earnings per share is not a better objective because it does not specify the timing or duration of expected returns. Also, maximizing earnings per share will not consider the risk or uncertainty of the prospective earnings. Some projects can be far risky than others and as a result the earnings per share would be more uncertain if these projects were undertaken. Maximizing shareholder wealth takes into account the present and prospective future earnings per share, the timing, duration, and risk of these earnings, also with any other factors that come about the market price of stock. The market price serves as a performance index or report care of the firm’s progress and indicates how well management is doing in behalf of its stockholders. 3. Debit gives stockholders the options to form a legal contract, fix maturity dates, fix periodic payments, security in case of defaults, deductible interest expense, and no
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Satisfactory Essays

    Accrual Method Checkpoint Hsm 260
    • 374 Words
    • 2 Pages

    Accrual Method Checkpoint Hsm 260

    The cash flow statement shows every transaction that has occurred as it happens with in the organization. This statement shows the amount of cash coming in and the cash paid out to other services. This cash flow statement shows a breakdown of the organizations financial statement to show what has occurred in a certain amount of time. For example, you can see the income and expenses for either a month or a year. The cash flow statement generally assesses a business’s financial health. This statement can help investors if they are planning to invest in this business, and to…

    • 374 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    xacc 291 week 7
    • 391 Words
    • 2 Pages

    xacc 291 week 7

    The term cash flows refer to the receipts and payment of cash. A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents is known as a statement of cash flow. Similar to an income statement, a cash flow statement records a company’s performance over a period of time. Consistently, companies will disclose the cash arising are generally required to prepare a statement of cash flow in their annual reports because it contains vital information for lenders and investors who primarily make informed and economic decisions about the companies. Generally during a company’s accounting period their cash flow is categorized and divided into three sections which are: cash flow from operations, financing and investing. The primary reasons these transactions are catergorized and divided is so investors will understand what the transactions are related to and how each section paints a vivid picture of how the company is doing from both a cash standpoint and overall health. The statement of cash flow is very important for companies that are required to prepare and present their financial statement in accordance to with international accounting standards and international financial reporting standards.…

    • 391 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    Acc 561 Financial Statements Differential
    • 910 Words
    • 4 Pages

    Acc 561 Financial Statements Differential

    Financial statements provide documentation of a company’s financial history for a set timeframe. One of the financial statement used by investors, creditors, and mangers is the balance sheet. The second statement used by accountant’s income statement, which is also important to shareholders. The third statement is the retained earnings statement, and the fourth financial statement is the statement of cash flows. Each financial statement has a different purpose and shows different aspects of the company’s finances. However, these financial statements are integrated and work together to provide shareholders financial information. This paper will defines the four financial statements while explaining the financial statement most suitable for either an investor, creditor, or management.…

    • 910 Words
    • 4 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Acc/291 Weekly Reflection
    • 305 Words
    • 2 Pages

    Acc/291 Weekly Reflection

    The statement of cash flow is one of the main financial statements which investors rely on to measure a company’s financial strength. Some investors are very much interested in this statement because they absolutely want returns on their investment. The cash flow statement identifies the cash is flowing in and out of the company. If a company is consistently generating more cash than it is using, the company will be able to increase its dividends, reduce debt, and acquire other businesses. All of this is perceived to be good for investors.…

    • 305 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    (Wal-Mart) Global Environments
    • 2438 Words
    • 10 Pages

    (Wal-Mart) Global Environments

    The statement of cash flow defines the financial activities during a reporting period for a company. The cash flow statement will define the interest, sale of debt or securities or the purchase of debt or securities with the exception of investments and financing activities that do not require the use of cash.…

    • 2438 Words
    • 10 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    FINC330 BUSINESS FINANCE
    • 2067 Words
    • 9 Pages

    FINC330 BUSINESS FINANCE

    The relevant portion of an asset’s risk attributable to market factors that affect all firms is called…

    • 2067 Words
    • 9 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Acc 220 Financial Statement
    • 264 Words
    • 2 Pages

    Acc 220 Financial Statement

    * A balance sheet is summary of a company's financial condition at a specific point in time, including assets, liabilities and net worth. It allows the company to know what they have been paying for or what they owe out to people. An income statement is a report that tracks a company’s revenues, gross profits, operating income, and net worth. All businesses need to have revenue in order to establish a good foundation to have their business up and running. A retained earnings statement is the portion of net income not paid out to investors in the business as dividends. If the company earns a profit they have to decide whether or not to invest it or keep it as theirs and distribute it evenly throughout the others in the company. Statement of cash flows provides information about an entity's cash receipts and cash payments during a period. Cash flow statements classify cash receipts and payments according to whether they stem from operating, investing, or financing activities. Assets are any item or items of economic value owned by an individual or corporation, especially that which could be converted to cash. A liability is an obligation that legally binds an individual or company to settle a debt. Comparative statements are financial statements for different periods that allow the comparison of figures to illustrate trends in a company’s performance. Stockholder’s equity is the part of the balance sheet that represents the capital received from investors in exchange for stock donated capital and retained…

    • 264 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Acc291
    • 267 Words
    • 2 Pages

    Acc291

    Companies use a statement of cash flows because it shows where cash came from and how it was used. The other main financial reports only provide a limited insight into the cash transactions of the company. While the other main reports utilize the accrual accounting basis, the statement of cash flows changes the accrual basis using the direct or indirect method. The indirect method is primarily used, however both are acceptable under generally accepted accounting principles. The statement of cash flows is divided into three sections and shown in the report in the following order. Operating activities is reported first, followed by investing activities, and finally financing activities. Operating activities deals with each transaction that involves both revenues and expenses. This category is considered important because operating activities are the best predictor of a company’s ability to generate future cash. This obviously is important information for investors as well as creditors when evaluating a company’s ability to grow and move forward. Investors can make educated guesses regarding the future cash flows based on the statement of cash flows better than viewing the other financial reports that utilize the accrual accounting basis. Investing activities include the transactions to purchase, sell, or dispose of company property. Loans and debt collection are also included in the investing activities with company plant and equipment. Investors can view the statement of cash flows to see if the company has sufficient cash on hand to pay stockholder dividends and meet future demands. Finally, financing activities includes receiving cash from stockholders, buying back company stock, and paying dividends.…

    • 267 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Fin 200 Week 1
    • 269 Words
    • 2 Pages

    Fin 200 Week 1

    The goals of financial management include profits. The problem with profits is that if you profit too or too little, your company will look bad. The key to having good financial management is having the ability to see that sometimes profit is not everything. Sometimes it looks better for the company’s stock share to go down a little as opposed to up. This will make it more desirable for people who are looking at buying the stock. The valuation approach is looking at everything in the company and trying to figure out where the company is going. It needs to look at risk, quality and reliability of earnings, and the increase or decrease of the earnings. I would think of this as an appraisal of how the company may do. Maximizing shareholder wealth seems tricky. The stock prices are not controlled by the company itself but by the way that the economy is. It would be very important for the company to make sure that they knew how the economy was doing so that they can make the best business decisions for their stockholders. Management has to be careful about the decisions that they make because they can affect the price of the stock including the wealth of its stockholders. These decisions need to be weighed very heavily because sometimes what is best for the stockholders, may not be best for the…

    • 269 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    ACCT 712
    • 1128 Words
    • 5 Pages

    ACCT 712

    1. Net cash will be different from a company's net income because of the changes in working capital (inventories, receivables, etc.) which is derived in the operating flows on a cash flow statement. By taking net income and making adjustments to reflect the changes, net cash flow from operating section will show how cash was generated. Another main reason is the translation process from accrual accounting to cash accounting because for example revenue reported on a accrual basis may not have been collected but on the cash flow statement and changes in cash is accounted for.…

    • 1128 Words
    • 5 Pages
    Satisfactory Essays
    Read More
  • Satisfactory Essays

    Cash Flow (Incremental)
    • 363 Words
    • 2 Pages

    Cash Flow (Incremental)

    These cash flows differ from accounting profits or earnings because they identify how much cash is available to the business. Profits indicate how much money is left after the company has sold its good and service from a performance standpoint. A company needs to be profitable, but it also needs to ensure there is cash available when needed. The cash flow statement allows the company to plan for purchasing raw materials and paying off taxes, debt and any other expenses.…

    • 363 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Good Essays

    Relationship between Various Financial Statements
    • 651 Words
    • 3 Pages

    Relationship between Various Financial Statements

    Financial statements are demonstrated in four different financial statements, which are balance sheet, income statement, retained earnings, and statement of cash flows. A balance sheet illustrates a financial picture at a point of time of what a business owns, which are the assets and what it owes, which are the liabilities. The income statement portrays how well a business performed during a period of time; and it reports revenue and expenses. The retained earnings statement indicates how much dividends are distributed and how much was retained in the business for future growth. Finally, the statement of cash flows presents the cash use in a business (Kimmell, et al, 2009).…

    • 651 Words
    • 3 Pages
    Good Essays
    Read More
  • Better Essays

    Acc 291 Week 4
    • 1112 Words
    • 5 Pages

    Acc 291 Week 4

    In any industry, have a clear picture of an organizations cash, and the flow of where it goes is an important part of a successful organization. Many organizations use different methods of accounting to view financial information. But some of the methods don’t provide certain information that is when the Cash Flow Statement comes into play. For example the balance sheet, income statement, and retained earnings statement only provide a limited amount of information regarding an organization cash flow (cash receipts and cash payments). For example, balance sheets will show the increase in property, plant, and equipment during a year. Although they do not show how the additions were financed or paid for. The income statement shows an organizations net income, it does not give a clue about the amount of cash generated by operating activities. Retained earnings statement shows cash dividends declared but not cash dividends that are paid during a year. What makes Cash Flow Statements so important is that they provide a detailed summary of where cash came from and how it was used compared to the other reports.…

    • 1112 Words
    • 5 Pages
    Better Essays
    Read More
  • Satisfactory Essays

    Financial Statements Paper Part I
    • 488 Words
    • 2 Pages

    Financial Statements Paper Part I

    Ori, J. (2014). What Business Decisions Could Be Made Using the Balance Sheet? Read more : http://www.ehow.com/info_8397837_business-made-using-balance-sheet.html. Retrieved from http://www.ehow.com/info_8397837_business-made-using-balance-sheet.html…

    • 488 Words
    • 2 Pages
    Satisfactory Essays
    Read More
  • Better Essays

    Balance Sheets and Income Statements
    • 1118 Words
    • 5 Pages

    Balance Sheets and Income Statements

    Federal Trade Commission. (2009, February). CVS Caremark Settles FTC Charges:Failed to Protect Medical and Financial Privacy of Customers and Employees. Retrieved from http://www.ftc.gov…

    • 1118 Words
    • 5 Pages
    Better Essays
    Read More

Related Topics