3 - Financial Statements, Cash Flows, and Taxes Flashcards
Report issued annually by a corporation to its stockholders; most important report
Annual report
Annual report contains 2 types of information:
- Verbal materials
- Quantitative materials (4 basic FS)
4/5 Basic Financial Statements
- Balance Sheet
- Income Statement
- Statement of Cash Flows
- Statement of Stockholders’ Equity
(5.) Notes to Financial Statement
Report what actually happened
Financial statements
Explain why things turned out the way they did
Management’s verbal statements
Made available to stockholders upon request
10-K reports
Statement of firm’s financial position at specific point in time; “snapshot” of firm’s position
Balance sheet
Assets that should be converted to cash within one year
Current assets
Assets expected to be used for more than one year
Long-term assets
2 types of claims against assets
- Liabilities
- Stockholders’ equity
Money company owes to others
Liabilities
Claims that must be paid off within one year
Current Liabilities
Include bonds that mature in more than a year
Long-term debt
Amount stockholders paid the company when shares were purchased and amount of earnings the company has retained
Stockholders’ Equity
2 ways Stockholders’ Equity can be made:
- Stockholders’ Equity = Paid in capital + Retained earnings
- Stockholders’ Equity = Total assets - Total liabilities
Cumulative total of all the earnings the company has earned and retained during its life
Retained earnings
Only the cash and equivalents account represents actual spendable money
Cash versus other assets
Current assets and are used and then replaced throughout the year
Working capital
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dili si kuya
When we subtract current liabilities from current assets
Net working capital
Makes a distinction between cash used for operating purposes and excess cash that is being held for other purposes
Net operating working capital (NOWC)
Interest-bearing liabilities are typically treated as
Financing cost
Company’s total debt includes both its short-term and long-term interest bearing liabilities
Total debt vs total liabilities
Companies finance their assets with a combination of short-term debt, long-term debt and common equity
Other sources of funds
Hybrid between common stock and debt
Preferred stock
Receiving payment only when something remains after the debt and preferred stock are paid off
Common stock
Accounting numbers
Book values
What assets would sell if they were offered for sale
Market values
Balance sheet changes every day as inventories rise and fall and as bank loans are increased or decreased.
Time dimension
“The bottom line” of all items on the income statement
Earnings per share (EPS)
Derived from firm’s regular core business
Operating income
Operating income is also called
EBIT or Earnings before interest and taxes
Company with no debt (therefore no interest expense) would report ____ net income
higher
Annual charge against income that reflects cost of tangible assets that were depleted in the production process.
Depreciation
(Same thing with depreciation expect) Represents the decline in value of intangible assets
Amortization
EBITDA
Earnings before Interest, Taxes, Depreciation & Amortization
Income statement reports on operations
over a period of time
Based on the cash flows from the asset is expected to product
Share of stock
Accounting report that shows how much cash the firm is generating
Statement of Cash Flows
Claim against assets; do not represent cash and are not ‘available’ for dividends
Retained Earnings
Shows how much a firm’s equity changed during the year and why this change occurred
Statement of Stockholders’ Equity
Provide a great deal of useful information
Financial statements
The amount of cash that could be withdrawn without harming a firm’s ability to operate and to product future cash flows
Free Cash Flow (FCF)
EBIT (1-T)
NOPAT or Net Operating Profit After Taxes
Profit a company would generate if it had no debt and held only operating assets
NOPAT or Net Operating Profit After Taxes
Difference between market value of a firm’s equity and the book value
Market Value Added (MVA)
Estimate of a business’s true economic profit for a given year; excess of NOPAT over capital costs
Economic Value Added (EVA)
