AFM273 Chapter Notes - Chapter 2: Net Income, Gross Profit, Asset Turnover

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM273
• Professor: Kenneth Vetzal

Document Summary

Public firms are required to issue a variety of financial statements with past performance information. Must be prepared in accordance to gaap/ifrs, checked by independent auditor: statement of financial position, statement of comprehensive income, statement of cash flows, statement of changes in equity, notes including accounting policies. Provides useful info to firm"s internal management, outside investors, creditors, and other interested parties: govt needs to regulate the firms. Provides a picture of the firm"s financial situation at a point in time. Both assets and liabilities are divided into current and long-term components: current: within 1 year, fixed: > 1 year. Low or negative nwc may indicate that a firm could face a shortage of funds. Liquidation value: value that would be left if the company"s assets were sold and liabilities were paid. Book value of equity does not accurately reflect what investors are willing to pay for the firm"s equity: assets are valued based on historical cost, not current worth.