13. Financial Statements Flashcards
What are the three types of financial statements?
- Balance sheets
- Income statements
- Cash flow statements
What factors affect stock prices?
External constraints, engineer’s decisions, strategic decisions by management
Accounting info (financial statements)
Expected projections
What’s the difference between the balance sheet and the other financial statements?
The balance sheet is a “snapshot” reported as an end of year summary.
What are the four quadrants on a balance sheet?
Assets (current + long-term) = liabilities and equity
Current liabilities are loans and costs for the year
Long-term liabilities are future payments
What are current assets?
- Assets that can be converted into cash or its equivalent within 1 year
- Include cash, cash equivalents, accounts receivable, inventory
Is it good to have machine working at max capacity to produce the most inventory possible?
It’s best to have the least inventory possible because it is not that easy to liquidate. This may mean reducing machine’s productivity
What are fixed assets?
Relatively permanent assets, take longer than a year to liquidate
- Land
- Building
- Factory machinery
- Office equipment
- Furniture and fixtures
- Vehicles
What are examples of intangible assets?
- Licenses, Patents, Goodwill, Copyrights, Franchises
What’s goodwill?
Added value to an asset that comes from global brand awareness (hype)
What are liabilities?
The money a company owes? Debt
Short-term liabilities include: accounts payable, wages, rent and interest
Long-term liabilities: bonds, mortgages, amount due more than 1 yr in the future
What is shareholders’ equity?
The portion of the assets that is provided by the investors/owners
(therefore, shareholder’s equity is actually the liability of the company to its owners)
- it consists of stocks, capital surplus, and retained earnings
Which ones of these are fixed assets and which are current assets?
Fixed: Land, plant and equipments
Current: Cash, accounts receivable, inventories
What are retained earnings?
Retained earnings indicate the amount of
assets that have been financed by putting profits back into the
business.
- it is the net income - total dividends paid to stockholders
What are the two ways a company gets equity?
- Owner’s contributions (selling shares)
- Retained earnings (retaining profits instead of paying out dividends)
What goes on the income statement?
Revenue (registered when G&S are sold) + Other income - Production costs of G&S sold, expenses (OP+R&D+Financial) and taxes
= Net income
What’s the gross margin?
Marginal revenue expressed on a “per sale” basis:
(Revenue - COGS) / Revenue
Whats the operating margin?
- like gross margin but include depreciation cost and indirect costs
Operating Income = Revenue - Costs
(Revenue - COGS - depreciation) / revenue
Why are corporate taxes lower for small businesses in Canada?
Because they provide many jobs and they are trying to be supportive.
What kind of financial statement is this?
Income statement.
Explain what’s going on here.
Balance sheet is a snapshot in time, of beginning and end of 2019. It shows the assets, liabilities and equity.
Income statement shows the total revenues and costs for the year.
What do cash flow statements show?
Sources and uses of funds
What does this diagram show?
All cash flows recorded in cash flow statement
What kind of financial statement is this?
A cash flow statement
What is working capital?
The measure of the company’s liquidity position
working capital = current assets - current liabilities
