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Chapter 2Chapter 2
Introductionto theFinancial Statements
 
 
Introduction to the Financial StatementsIntroduction to the Financial Statements
How doaccounting rulesaffect price-to- book ratios and price-earningsratios?
 
 
What Will You Learn from this ChapterWhat Will You Learn from this Chapter
•The broad picture of the firm that is painted by thefinancial statements•The component parts of each financial statement•How the financial statements fit together (or “articulate”).•The accounting relations that govern the financialstatements•The stocks and flow equation that dictates howshareholders’ equity is updated•The concept of dirty-surplus accounting•The accounting principles that dictate how the balance sheet is measured•How price-to-book ratios are affected by accounting principles•The accounting principles that dictate how earningsare measured•How price-earnings ratios are affected by accounting principles•The difference between market value added andearnings•Why fundamental analysts want accountants toenforce the reliability criterion•How financial statements anchor investors
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