Analysis for Financial Management (10th Edition) by Robert Higgins

By Robert Higgins

Research for monetary administration, 10e provides common thoughts and sleek advancements in a realistic and intuitive demeanour with an emphasis at the managerial purposes of economic research. it's meant for non-financial managers and company scholars attracted to the perform of economic administration.

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Thus, although a company’s research outlays in a given year may have produced technical breakthroughs that will benefit the firm for decades to come, all of the costs must be shown on the income statement in the year incurred. The requirement that companies expense all research and marketing expenditures when incurred commonly understates the profitability of high-tech and high-marketing companies and complicates comparison of American companies with those in other nations that treat such expenditures more liberally.

A more inclusive measure of cash generation is therefore cash flow from operating activities as it appears on the cash flow statement. Cash flow from operating activities ϭ Net cash flow ± Changes in current assets and liabilities A third, even more inclusive measure of cash flow, popular among finance specialists is Free cash flow ϭ Total cash available for distribution to owners and creditors after funding all worthwhile investment activities Free cash flow extends cash flow from operating activities by recognizing that some of the cash a business generates must be plowed back into the business, in the form of capital expenditures, to support growth.

Indeed, if all goes according to plan, most of the firm’s existing assets will be consumed in generating future income. The problem with the accountant’s measure of shareholders’ equity is that it bears little relation to future income. There are two reasons for this. First, because the accountant’s numbers are backward-looking and cost-based, they often provide few clues about the future income a company’s assets might generate. qxd 9/21/11 2:12 PM Page 25 Chapter 1 Interpreting Financial Statements 25 Fair Value Accounting and the Financial Crisis of 2008 The financial crisis of 2008 revealed several quirks and problems with fair value accounting.

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