FIN 311 1st Edition Lecture 2 Outline of Last Lecture I. Quick Overview of Syllabusa. Exams b. Online Quizzesc. LearnSmart Reading/ Practice Assignmentsd. Online Homeworke. Ethics Essayf. AssistanceII. Four Areas of Finance Outline of Current Lecture I. Balance Sheeta. Assetsb. Goodwill on the Balance Sheetc. Liabilitiesd. Owners’ EquityCurrent LectureAn annual report is known as a 10K. It is a sales document but can also been used as a marketing tool.Balance Sheet: A balance sheet is a financial statement showing a firm’s accounting value on a particular date and is viewed as a “snap shot.” Balance Sheet Identity: Assets= Liabilities + Owners’ Equitya. Assets: Presented on the left side of the balance sheet. Are listed in historical cost. Less depreciation if applicable. Current Assets are converted to cash within a year. Examples: Marketable securities, cash, accounts receivable and inventory Accounts receivable is the amount of credit owed to you. Fixed Assets are long term assets such as PPE, property, plant and equipment. They are depreciable assets. - Gross PPE is the sum of the historical cost of all of the currently owned PPE- Net PPE is accumulated depreciation of all currently owned PPEThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Fixed assets are tangible which means you can see and touch them. They are physical assets. Intangible assets are untouchable such as copyrights, trademarks, patents and goodwill. There are other types of “assets” that create value but are not listed on the balance sheet. These would be labor/management, the company’s name and reputation. These are not listed because they are difficult to quantify and are subjective. Assets are listed in order of liquidity. Liquidity is how quickly an asset can be converted to cash with little or no loss in value.b. Goodwill on the Balance Sheet: An acquisition occurred, Firm A buys Firm B for $250. Firm B’s balance sheet cost=$100.The Goodwill is $150.c. Liabilities: What the firm owes Current liabilities are paid out in cash within 1 year. Examples: Accounts payable, note payable, current portion of long term debtd. Owners’ Equity: Preffered Stock Current Stock:- Por value: Per share does not change- Capital in excess of por value; paid-in-capital. Seasoned Public Offerings are sold ay the going market price.- Paid-in-capital = Market price – Por value Retained Earnings: - Reflects the earnings that have been retained in the firm over the years instead of being distributed as dividends to share holders. - The firm will reinvest earnings (net income) back into business. - Retained earnings are the accumulation of all of these reinvested earnings. Networking Capital= CA – CL Prefer CA > CL NWC > O- CA: Most liquid assets - NWC: Measure of liquidity- Risk-return Tradeoff: High risk, high return or low risk, low return Book value: Accounting measure Market Value: Someone is willing to pay. Expectations, Market Conditions,