Taxes (D)
Primary Market
Secondary
Market
Auction markets are different from dealer
markets in two ways:
◦ Trading in a given auction exchange takes place at
a single site on the floor of the exchange.
◦ Transaction prices of shares are communicated
almost immediately to the public.
◦ Listing
An accountant’s snapshot of the firm’s
accounting value as of a particular
date.
The Balance Sheet Identity is:
Assets ≡ Liabilities + Stockholder’s
Equity
When analyzing a balance sheet, the
financial manager should be aware of
three concerns: accounting liquidity,
debt versus equity, and value versus
cost.
Total Value of Assets Total Firm Value to Investors
Long-Term Debt
Fixed Assets
1. Tangible Shareholders’
2. Intangible Equity
Net Working Capital ≡ Current Assets – Current
Liabilities
◦ NWC > 0 when Current Assets > Current
Liabilities
◦ NWC < 0 when Current Assets < Current
Liabilities
◦ NWC = 0 when Current Assets = Current
Liabilities
NWC usually grows with the firm for the healthy
firms.
The Net Working Capital Investment Decision
Current
Current Liabilities
Net
Working
Assets Capital Long-Term
Debt
How much short-
Fixed Assets term cash flow Shareholders’
does a company
1. Tangible
need to pay its Equity
2. Intangible bills?
A firm has
◦ current assets of $100,
◦ Net fixed assets of $500,
◦ Short term debt of $70, and
◦ Long term debt of $200
Now…
◦ Total Assets are $100 + 500 = $600
◦ Total Liabilities are $70 + 200 = $270
◦ Shareholders’ equity is $600 – 270 = $330
Liabilities and
Assets Shareholders’ Equity