Chapter 2: Information and Environment for Financial Management

The following sections are included:

• Introduction

• Economic Policies and Information

  • Monetary policy

  • Fiscal policy

  • Leading economic indicators (LEIs)

• Financial Market Information

  • The stock market

  • The bond market

  • The option market

  • Other markets

• Financial Statements: A Brief Review

  • Balance sheet

  • Statement of earnings

  • Statement of equity

  • Statement of cash flows

  • Interrelationship among four financial statements

  • Annual versus quarterly financial data

• Critique of Accounting Information

  • Criticism

  • Methods for improvement

• Static Ratio Analysis

  • Static determination of financial ratios

• Cost–Volume–Profit Analysis

  • Deterministic break-even analysis

  • Stochastic analysis

• Relationships among Economic, Financial, and Accounting Information

• Summary

• Appendix 2A — Calculate 27 Financial Ratios with Excel

  • Liquidity Ratio

  • Financial Leverage Ratio

  • Asset Efficiency Ratios

  • Profitability Ratios

  • Market Value Ratios

• Appendix 2B — Two Possible Methods to Estimate SGR

• Appendix 2C — How to Compute DOL, DFL, and DCL with Excel