Balance sheet

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  • The balance sheet: shows firm's accounting value at a given point in time; Assets = equity + liabilities
    • Assets: current and fixed; listed in order of the length of time it takes for them to convert to cash; the structure of assets reflects the line of business the firm is in
      • FIxed: tangible and intangible
    • Liabilites: current or long term; listed in order of which they must be paid ; reflects capital structure decisions
    • Owner's equity: diff b/w assets & liabilities - residual value
    • NWC=CA - CL
    • Liquidity issue: ease of conversion vs loss of value; the more liquid a business is, the less likely it is to face financial distress
    • debt vs equity: higher use of debt is called financial leverage
    • Mkt vs book value: book value is historical cost not current worth - diff can be quite large
  • Owner's equity: diff b/w assets & liabilities - residual value

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