course material

1. Respond to 2 peers My Post -What are the four
Respond to 2 peersMy Post -What are the four statements contained in most annual
reports?The first financial statement is a balance sheet, which summarizes the
organization’s financial position. A balance sheet provides a list of all the organization’s
assets, liabilities, and equity owned by stakeholders. The assets listed are either current
assets, such as cash and stock inventory, or fixed assets, such as buildings, equipment, and
land. Examples of liabilities that an organization may list include taxes and wages. A balance
sheet helps evaluate an organization’s ability to meet its long-term financial commitments
(Felber et al., 2019). The second financial statement is an income statement, and it
summarizes the amount of money earned and spent by an organization in a financial year.
Earnings are derived from the revenue, such as sales and interests, while money spent is
delivered from incurred expenditures such as purchases. The third financial statement is a
cash flow statement, and it explains the source of capital and how it was spent in that
specific financial year. The fourth financial statement is the equity statement or statement
of retained earnings. It indicates shareholders’ equity at the beginning of a particular year,
investments in the business, and the net income acquired.-What is free cash flow?It
represents the amount of cash generated by a business after accounting for reinvestment in
non-current capital assets by the company. It is calculated by subtracting Capital
Expenditures from the Cash from Operations (Ketz, 2016).-Why is it the most important
measure of cash flow?Free cash flow (FCF) is the most important measure of cash flow since
it monitors the amount of cash left over after capital expenditure.ReferencesFelber, C.,
Campos, V., & Sanchis, J. R. (2019). The common good balance sheet, an adequate tool to
capture non-financials?. Sustainability, 11(14), 3791.Ketz, J. E. (2016). Free cash flow and
business combinations. The CPA Journal, 86(11), 48-53.Peer1: Annual reports contain a
balance sheet, income statement, statement of shareholders’ equity, and statement of cash
flows. The balance sheet provides a snapshot of the financial position of the company on
the last day of the reporting period. The income statement reports the performance of the
company during the reporting period. The statement of shareholders’ equity reports any
changes during the reporting period. Finally, the statement of cash flows separates the cash
activities into three categories: operating, investing, and financing, then provides a cash
balance. (Brigham & Ehrhardt, 2020).Free cash flow is the intrinsic value of a business. It is
determined by the cash flow stream generated by operating activities that investors expect
to receive currently and in the future. (Brigham & Ehrhardt, 2020). It is the most important
measure of cash flow for many reasons. It is an indication of the likelihood that the

2. company would be able to make their dividend payments. If the free cash flow exceeds the
dividends, this indicates that there will be the potential for greater dividends in the future
and makes the company look more attractive to investors. Free cash flow can also indicate
the ability of a company to repay its debts, thus making them more attractive to
creditors. Banks may be more apt to lend money to a company with positive free cash
flow. (The Investopedia Team, 2021).Brigham, E. F., & Ehrhardt, M. C. (2020). Financial
management: Theory & practice. Cengage.The Investopia Team (4 March 2021). Free Cash
Flow vs. Operating Cash Flow: What’s the Difference?
Investopia. https://www.investopedia.com/ask/answers/111314/whats-difference-
between-free-cash-flow-and-operating-cash-flow.aspPeer2: The four financial statements
often contained in most annual reports are the Balance Sheet, Income Statement (also
referred to as statement of operations), Statement of Cashflows, and Statement of
Shareholder’s equity. The four financial statements paint a picture of the financial health of
the company at a given date. The Balance Sheet shows the assets, liabilities and equity of the
company and helps to paint a picture of the relative health of the company by showing
relationships between the companies assets and obligations. The income statement shows
financial performance from operations and its relative profitability. Whereas the Statement
of Cashflows shows the in and outflows of cash during a period and where cash was used.
Lastly, the Statement of Shareholder Equity tracks the equity or surplus in the company and
helps to show the financial health or perhaps amounts available for dividends.Free cash
flow is cash flow available for investment opportunities after operating expenses and other
financial obligations such as taxes, debt obligations, etc.Free cash flow is an important
measure of cash flow because it represents the ability of the company to take advantage of
opportunity, to pivot into a new market, to pay for unbudgeted and unexpected expenses or
survive a catastrophic event. Sources: https://www.sec.gov/reportspubs/investor-
publications/investorpubsbegfinstmtguidehtm.html#:~:text=There%20are%20four%20m
ain%20financial,a%20fixed%20point%20in%20time.