Financial Statements, Cash Flow, and Taxes - Chapter 3 Notes

Financial Statements, Cash Flow, and Taxes

Learning Objectives

After reading this chapter, students should be able to do the following:

List each of the key financial statements and identify the kinds of information they provide to corporate managers and investors.
Estimate a firm’s free cash flow and explain why free cash flow has such an important effect on firm value.
Discuss the major features of the federal income tax system.

Balance Sheet

Figure 3-1: Shows a typical balance sheet.
Table 3-1: Presents Allied Food Products' balance sheets as of December 31 (in millions of dollars).

Income Statement

Table 3-2: Shows Allied Food Products' income statements for the years ending December 31 (in millions of dollars, except for per-share data).

Statement of Cash Flows

Table 3-3: Displays Allied Food Products' statement of cash flows for 2019 (in millions of dollars).

Statement of Stockholders’ Equity

Table 3-4: Shows Allied Food Products' statement of stockholders’ equity as of December 31, 2019 (in millions of dollars).

Individual Tax Rates

Table 3-5: Lists the 2018 individual tax rates.

Returns to Investors

Table 3-6: Compares returns to investors under bond and stock financing.

Loss Carryforward Calculation

Table 3-7: Illustrates the calculation of loss carryforward for 2020–2021 using a 12 million loss from 2019.

Integrated Case Tables

Table IC3-1: Balance Sheets
Table IC3-2: Income Statements
Table IC3-3: Statement of Stockholders’ Equity, 2019
Table IC3-4: Statement of Cash Flows, 2019