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From Financial Statements to Economic Cash Flows

Translating accounting into finance (present value cash flows)

To understand the structure of business and its backbones, it is necessary to master its language, i.e., financial accounting. Without knowledge regarding financial accounting, it is not possible to perform a Net Present Value analysis. With the help of financial accounting you can find out corporate income tax- which is a mandatory NPV analysis.

In this chapter we will deal with a hypothetical project that will make understanding and calculating NPV quite easy. The chapter will go on to explain the correspondence between accounting and finance with an accountant’s view of the project in a finance statement. Finally, this chapter will deal with the finance statements of a real company, PepsiCo.

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