Reading: The Accounting Framework
A solid financial plan is the basis of every valuation exercise and every significant management decision. The financial plan allows us to identify the firm's capital needs as well as its ability to generate cash. It also unveils the various sources and uses of funds. This section shows how to set up a financial plan.
1. The Accounting Framework
In most instances, the balance sheet and the income statement provide sufficient information to identify the sources and uses of funds with respect to the firm's operating, investment, and financing activities.
This chapter provides the necessary minimum accounting framework to complete that task. We start by looking at the firm's balance sheets and income statements and then turn to the link between the two statements.