FNBU 3441 Chapter Notes - Chapter 2: Current Liability, Accounts Payable, Cash Flow

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Chapter 2: financial statements, taxes, and cash flow. Important things to keep in mind: liquidity, debt vs. equity, and market value vs. book value. Assets: the left side: fixed long life, can either be tangible or intangible, current life of less than a year / will cover to cash within 12 months (i. e. inventory, cash, accounts receivable) Liabilities and owne(cid:396)s" e(cid:395)uity: the right side: current must be paid within a year (i. e. accounts payable, long-term. Shareholders equity = assets - liabilities (balance sheet identity) Net working capital: current assets - current liabilities. Liquidity: how fast an asset can be converted to cash, 2 dimensions ease of conversion and loss of value. Any asset can be converted to cash quickly if we cut the price enough. Highly liquid assets can be sold without significant loss of value. Illiquid assets cannot be sold without substantial price reduction: assets in balance sheet are listed in order of decreasing liquidity.

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