Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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![**Calculating the Expected Return on a Portfolio**
You own a portfolio that has $2,900 invested in Stock A and $3,900 invested in Stock B. If the expected returns on these stocks are 7 percent and 10 percent, respectively, what is the expected return on the portfolio?
**Important Note**: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16%.
Below the problem statement, there is a space provided for the answer with a label for "Portfolio expected return" followed by a text box and a percentage sign (%).
To solve this, use the formula for the expected return on a portfolio:
\[ \text{Expected Return} = \left( \frac{\text{Investment in Stock A}}{\text{Total Investment}} \right) \times \text{Return of Stock A} + \left( \frac{\text{Investment in Stock B}}{\text{Total Investment}} \right) \times \text{Return of Stock B} \]
1. Calculate the total investment in the portfolio:
\[ \text{Total Investment} = \$2,900 + \$3,900 = \$6,800 \]
2. Determine the weight of each stock in the portfolio:
\[ \text{Weight of Stock A} = \frac{\$2,900}{\$6,800} \]
\[ \text{Weight of Stock B} = \frac{\$3,900}{\$6,800} \]
3. Use the weights and the expected returns of each stock to find the expected return of the portfolio:
\[ \text{Expected Return} = \left( \frac{2900}{6800} \right) \times 0.07 + \left( \frac{3900}{6800} \right) \times 0.10 \]
4. Perform the calculations:
\[ \text{Weight of Stock A} = 0.4265 \]
\[ \text{Weight of Stock B} = 0.5735 \]
5. Calculate the contribution of each stock to the expected return:
\[ \text{Contribution of Stock A} = 0.4265 \times 0.07 = 0.029855 \]
\[ \text{Contribution of Stock B} = 0.573](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4075dd7b-7cf0-4080-a9ab-c20ff4793850%2F28e75f22-b42f-489a-bb25-47b007161016%2F2u4x37_processed.png&w=3840&q=75)
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