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LibraryPirate CONTENTS Public and Private Markets 31 Markets 32
Futures and Options
Corporate Income Tax Rates 72 Average versus Marginal Tax Rates 72 Unequal Treatment of Dividends and Interest Payments 73
2.4 MARKET EFFICIENCY 33 Efficient Market Hypotheses 33
2.5 FINANCIAL INSTITUTIONS AND INDIRECT FINANCING 34 Indirect Market Transactions 35 Financial Institutions and Their Services 35 Corporations and the Financial System 36
2.6 THE DETERMINANTS OF INTEREST RATE LEVELS 38
Summary of Learning Objectives • Summary of Key Equations • Self-Study Problems • Solutions to Self-Study Problems • Critical Thinking Questions • Questions and Problems • Sample Test Problems
3
Financial Statements, Cash Flows, and Taxes 48
3.1 FINANCIAL STATEMENTS AND ACCOUNTING PRINCIPLES 49 The Annual Report 49 Generally Accepted Accounting Principles 50 Fundamental Accounting Principles 50 International GAAP 51 Illustrative Company: Diaz Manufacturing 51
3.2 THE BALANCE SHEET 52 Current Assets and Liabilities 53 and Liabilities 54 Equity 55
Long-Term Assets
3.3 MARKET VALUE VERSUS BOOK VALUE 57 A More Informative Balance Sheet 57 Value Balance Sheet 58
A Market-
3.4 THE INCOME STATEMENT AND THE STATEMENT OF RETAINED EARNINGS 60 The Income Statement 60 Retained Earnings 63
Summary of Learning Objectives • Summary of Key Equations • Self-Study Problems • Solutions to Self-Study Problems • Critical Thinking Questions • Questions and Problems • Sample Test Problems
CH AP TE R
The Real Rate of Interest 38 Loan Contracts and Inflation 40 The Fisher Equation and Inflation 40 Cyclical and Long-Term Trends in Interest Rates 42
CHAP T ER
3.8 FEDERAL INCOME TAX 71
The Statement of
3.5 THE STATEMENT OF CASH FLOWS 63
4
Analyzing Financial Statements
81
4.1 BACKGROUND FOR FINANCIAL STATEMENT ANALYSIS 82 Perspectives on Financial Statement Analysis 82 Guidelines for Financial Statement Analysis 83
4.2 COMMON-SIZE FINANCIAL STATEMENTS 84 Common-Size Balance Sheets 84 Income Statements 85
Common-Size
4.3 FINANCIAL RATIOS AND FIRM PERFORMANCE 86 Why Ratios Are Better Measures 86 Short-Term Liquidity Ratios 87 Efficiency Ratios 89 Leverage Ratios 93 Profitability Ratios 97 Market-Value Indicators 100 Concluding Comments on Ratios 101
4.4 THE DUPONT SYSTEM: A DIAGNOSTIC TOOL 101 An Overview of the DuPont System 101 The ROA Equation 101 The ROE Equation 103 The DuPont Equation 103 Applying the DuPont System 104 Is Maximizing ROE an Appropriate Goal? 104
4.5 SELECTING A BENCHMARK 106 Trend Analysis 106 Group Analysis 106
Industry Analysis 106
4.6 USING FINANCIAL RATIOS 108 Performance Analysis of Diaz Manufacturing 108 Limitations of Financial Statement Analysis 111
Sources and Uses of Cash 63
3.6 TYING THE FINANCIAL STATEMENTS TOGETHER 66
3.7 CASH FLOWS TO INVESTORS 67 Net Income versus the Cash Flow to Investors 67 Cash Flow To Investors: Putting It All Together 70
Summary of Learning Objectives • Summary of Key Equations • Self-Study Problems • Solutions to Self-Study Problems • Critical Thinking Questions • Questions and Problems • Sample Test Problems
E T H I C S C A S E : A S a d Ta le : T h e De mi s e o f Arthur Andersen 122
Peer