Chapter 3

SAMARKAND BRANCH OF TASHKENT
STATE UNIVERSITY OF ECONOMICS
TOPIC: FINANCIAL STATEMENT

Group: BH-222
TEACHER: NABIEV SHERZOD

STUDENT: JURAEV ABDULKHAKIM
A manager’s primary goal is to maximize shareholder value, which is based on the firm’s future cash flows. But how do managers decide which actions are most likely to
increase those flows, and how do investors estimate future cash flows? The answers to both questions lie in a study of financial statements that publicly traded firms
must provide to investors. Here investors include both institutions (banks, insurance companies, pension funds, and the like) and individuals like you. Much of the
material in this chapter deals with concepts you covered in a basic accounting course. However, the information is important enough to warrant a review. Also, in
accounting you probably focused on how accounting statements are made; the focus here is on how investors and managers interpret and use them. Accounting is the
basic language of business, so everyone engaged in business needs a good working knowledge of it. It is used to “keep score”; if investors and managers do not know
the score, they won’t know whether their actions are appropriate. If you took midterm exams but were not told your scores, you would have a difficult time knowing
whether you needed to improve. The same idea holds in business. If a firm’s managers—whether they work in marketing, human resources, production, or finance—
do not understand financial statements, they will not be able to judge the effects of their actions, which will make it hard for the firm to survive, much less to have a
maximum value.
When you finish this chapter you 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.
FINANCIAL STATEMENT
The Annual report is the most important report that corporations issue to stockholders, and it contains two types of
information. First, there is a verbal section, often presented as a letter from the chairman, which describes the firms` operating
results during the past year and discusses new developments that will affect future operations.
Secondly, the report provides these four basic financial statements;
 The balance sheet which shows that assets the company owns and who has claims on those assets as of a given data.
For example, December 31st, 2024
 The income statement which shows about firms` sales and costs (and thus profits) during some past period. For
example, 2023
 The statement of cash flows, which shows how much cash the firm began the year with, how much cash it ended up
with, and what it did to increase or decrease its cash.
 The statement of stockholders’ equity, which shows the amount of equity the stockholders had at the start of the
year, the items that increased or decreased equity, and the equity at the end of the year.
Balance sheet.
Balance Sheet which a statement of a firm’s financial
position at a specific point in time.
Stockholders’ Equity which represents the amount that

stockholders paid the company when shares were purchased
and the amount of earnings the company has retained since its
origination.
Net Working Capital Current assets minus current liabilities
Net working capital = Current assets - Current liabilities

$1,000 - $310 = $690 million
Stockholders’ equity = Paid-in capital + Retained earnings
Stockholders’ equity = Total assets -Total liabilities

Income statement
Income Statements reports summarizing a firm’s revenues,
expenses, and profits during a reporting period, generally a
quarter or a year.
Operating Income earnings from operations before interest and

taxes
Taking a closer look at the income statement, we see that depreciation

and amortization are important components of operating costs. Recall
from accounting that depreciation is an annual charge against income
that reflects the estimated dollar cost of the capital equipment and other
tangible assets that were depleted in the production process.
Amortization amounts to the same thing except that it represents the

decline in value of intangible assets such as patents, copyrights,
trademarks, and goodwill. Because depreciation and amortization are so
similar, they are generally lumped together for purposes of financial
analysis on the income statement and for other purposes. They both
write off, or allocate, the costs of assets over their useful lives.
Statement of cash flows
The statement of cash flows as shown in Table, is the
accounting report that shows how much cash the firm is
generating. The statement is divided into four sections, and we
explain it on a line-by-line basis. 9 Here is a line-by-line
explanation of the statement shown in Table:
Operating activities. This section deals with items that occur as
part of normal ongoing operations.
Investing activities. All activities involving long-term assets are
covered in this section. It also includes the purchase and sale of
short-term investments, other than trading securities, and
lending and collecting on notes receivables.
Statement of Stockholder`s
equity
Statement of Stockholders’ Equity. A statement that shows
by how much a firm’s equity changed during the year and why
this change occurred.
Changes in stockholders’ equity during the accounting period

are reported in the statement of stockholders’ equity. Table A
shows that Allied earned $117.5 million during 2018, paid out
$57.5 million in common dividends, and plowed $60 million
back into the business. Thus, the balance sheet item “Retained
earnings” increased from $750 million at year-end 2017 to $810
million at year-end 2018.
Cash Flow
Free Cash Flow (FCF) The amount of cash that could be Net Operating Profit After Taxes (NOPAT) The profit a company
withdrawn without harming a firm’s ability to operate and to would generate if it had no debt and held only operating assets
produce future cash flows.
Market Value Added (MVA) The excess of the market value of

equity over its book value.
Economic Value Added (EVA) Excess of NOPAT over capital costs.
Source: Fundamentals of financial Management

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SAMARKAND BRANCH OF TASHKENT

STATE UNIVERSITY OF ECONOMICS

TOPIC: FINANCIAL STATEMENT

TEACHER: NABIEV SHERZOD

Stockholders’ Equity which represents the amount that

Net Working Capital Current assets minus current liabilities

Net working capital = Current assets - Current liabilities

Stockholders’ equity = Paid-in capital + Retained earnings

Stockholders’ equity = Total assets -Total liabilities

Operating Income earnings from operations before interest and

Taking a closer look at the income statement, we see that depreciation

Amortization amounts to the same thing except that it represents the

Changes in stockholders’ equity during the accounting period

Market Value Added (MVA) The excess of the market value of

Economic Value Added (EVA) Excess of NOPAT over capital costs.

Source: Fundamentals of financial Management

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