Financial Management Chapter 2

Robert Herz
chairman of the FASB
income statement
the major device for measuring the profitability of a firm over a period of time
earnings per share
net income or profit divided by the number of stock shares outstanding
price-earnings ratio
the multiplier applied to earnings per share to determine the current value of the common stock
balance sheet
indicates what the firm owns and how these assets are financed in the form of liabilities or ownership interest; most assets listed at historical cost
convertibility to cash; balance sheet assets are listed in order of this
net worth
stockholder’s equity minus the preferred stock; the book value of the firm
statement of cash flows
emphasizes the critical nature of cash flow to the operations of the firm
operating, investing, finance
these three activities are the three main sections on the statement of cash flows
an attempt to allocate the initial cost of an asset over its useful life
free cash flow
Cash Provided by operations – Capital expenditures – Cash dividends

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