WEB-APPENDIX E*

FINANCIAL STATEMENTS

Acorporation's financial statements are summaries of the decisions made by management and are the subject of this appendix. These decisions include operating, financing, and investment decisions. Throughout this book we have primarily focused on the financing decision (i.e., capital structure decision) and investment decision (i.e., capital budgeting decision). The financial statements should furnish information that can be utilized by the suppliers of capital to be able to forecast future cash flows and the riskiness associated with those forecasts.

There are four basic financial statements: the balance sheet, the income statement, the statement of cash flows, and the statement of shareholders’ equity. We describe each in this appendix.¹ The tools for financial analysis that suppliers of capital can use to assess a firm's performance are the subjects of Web-Appendix F.