What four financial statements are contained in most annual reports?
3-2 What do the numbers on financial statements actually represent?
3-3 Who are some of the basic users of financial statements, and how do they use them?
3-4 If a “typical” firm reports $20 million of retained earnings on its balance sheet, could its directors declare a $20 million cash dividend without any qualms whatsoever?
3-5 Explain the following statement: “While the balance sheet can be thought of as a
snapshot of the firm’s financial position at a point in time, the income statement
reports on operations over a period of time.”
3-6 Financial statements are based on generally accepted accounting principles (GAAP) and audited by CPA firms, so do investors need to worry about the validity of those statements?
3-7 Differentiate between accounting profit and net cash flow. Why do those two numbers differ?
3-8 Differentiate between operating cash flow and net cash flow. Why might those two numbers differ?
What’s the difference between NOPAT and net income? How does debt affect the relationship between these two items?
3-10 What is free cash flow? If you were an investor, why might you be more interested in free cash flow than net income?
3-11 Would it be possible for a company to report negative free cash flow and still be highly valued by investors; that is, could a negative free cash flow ever be a good thing in the eyes of investors?
3-12 What does double taxation of corporate income mean? Could income ever be subject to triple taxation?
3-13 How does the deductibility of interest and dividends by the paying corporation affect the choice of financing (that is, the use of debt versus equi
