ACC 203 Lecture 4: Financial Statements

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The primary goal of financial accounting is to provide decision makers w/ useful info. Wealth increase is comprised of 2 parts: increases in market value of investment, dividends: periodic cash distributions from firm to its owners. Both sources of wealth depend on firm"s ability to generate cash. Financial statements can improve decision making by providing info that help current & potential investors estimate firm"s future cash flows: risk: the uncertainty surrounding estimates of expected return. Implies that the return is not guaranteed. For most investments, numerous alliterative future returns are possible: ex: an investor may project that a firm"s most likely return for upcoming yr. is k. However, investor recognizes that this is not the only possibility. There is a chance that the firm might generate returns of k or k. There are also possibilities of a return of k or k. The greater the difference among these estimates, the greater the risk.

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