3 - Financial Statements, Cash Flows, and Taxes

Question 1

Report issued annually by a corporation to its stockholders; most important report

Answer 1

Annual report

Question 2

Annual report contains 2 types of information:

Answer 2

1. Verbal materials
2. Quantitative materials (4 basic FS)

Question 3

4/5 Basic Financial Statements

Answer 3

1. Balance Sheet
2. Income Statement
3. Statement of Cash Flows
4. Statement of Stockholders’ Equity
   (5.) Notes to Financial Statement

Question 4

Report what actually happened

Answer 4

Financial statements

Question 5

Explain why things turned out the way they did

Answer 5

Management’s verbal statements

Question 6

Made available to stockholders upon request

Answer 6

10-K reports

Question 7

Statement of firm’s financial position at specific point in time; “snapshot” of firm’s position

Answer 7

Balance sheet

Question 8

Assets that should be converted to cash within one year

Answer 8

Current assets

Question 9

Assets expected to be used for more than one year

Answer 9

Long-term assets

Question 10

2 types of claims against assets

Answer 10

1. Liabilities
2. Stockholders’ equity

Question 11

Money company owes to others

Answer 11

Liabilities

Question 12

Claims that must be paid off within one year

Answer 12

Current Liabilities

Question 13

Include bonds that mature in more than a year

Answer 13

Long-term debt

Question 14

Amount stockholders paid the company when shares were purchased and amount of earnings the company has retained

Answer 14

Stockholders’ Equity

Question 15

2 ways Stockholders’ Equity can be made:

Answer 15

1. Stockholders’ Equity = Paid in capital + Retained earnings
2. Stockholders’ Equity = Total assets - Total liabilities

Question 16

Cumulative total of all the earnings the company has earned and retained during its life

Answer 16

Retained earnings

Question 17

Only the cash and equivalents account represents actual spendable money

Answer 17

Cash versus other assets

Question 18

Current assets and are used and then replaced throughout the year

Answer 18

Working capital

Question 19

kinsa pinaka gwapo

Answer 19

dili si kuya

Question 20

When we subtract current liabilities from current assets

Answer 20

Net working capital

Question 21

Makes a distinction between cash used for operating purposes and excess cash that is being held for other purposes

Answer 21

Net operating working capital (NOWC)

Question 22

Interest-bearing liabilities are typically treated as

Answer 22

Financing cost

Question 23

Company’s total debt includes both its short-term and long-term interest bearing liabilities

Answer 23

Total debt vs total liabilities

Question 24

Companies finance their assets with a combination of short-term debt, long-term debt and common equity

Answer 24

Other sources of funds

Question 25

Hybrid between common stock and debt

Answer 25

Preferred stock

Question 26

Receiving payment only when something remains after the debt and preferred stock are paid off

Answer 26

Common stock

Question 27

Accounting numbers

Answer 27

Book values

Question 28

What assets would sell if they were offered for sale

Answer 28

Market values

Question 29

Balance sheet changes every day as inventories rise and fall and as bank loans are increased or decreased.

Answer 29

Time dimension

Question 30

“The bottom line” of all items on the income statement

Answer 30

Earnings per share (EPS)

Question 31

Derived from firm’s regular core business

Answer 31

Operating income

Question 32

Operating income is also called

Answer 32

EBIT or Earnings before interest and taxes

Question 33

Company with no debt (therefore no interest expense) would report ____ net income

Answer 33

higher

Question 34

Annual charge against income that reflects cost of tangible assets that were depleted in the production process.

Answer 34

Depreciation

Question 35

(Same thing with depreciation expect) Represents the decline in value of intangible assets

Answer 35

Amortization

Question 36

EBITDA

Answer 36

Earnings before Interest, Taxes, Depreciation & Amortization

Question 37

Income statement reports on operations

Answer 37

over a period of time

Question 38

Based on the cash flows from the asset is expected to product

Answer 38

Share of stock

Question 39

Accounting report that shows how much cash the firm is generating

Answer 39

Statement of Cash Flows

Question 40

Claim against assets; do not represent cash and are not ‘available’ for dividends

Answer 40

Retained Earnings

Question 41

Shows how much a firm’s equity changed during the year and why this change occurred

Answer 41

Statement of Stockholders’ Equity

Question 42

Provide a great deal of useful information

Answer 42

Financial statements

Question 43

The amount of cash that could be withdrawn without harming a firm’s ability to operate and to product future cash flows

Answer 43

Free Cash Flow (FCF)

Question 44

EBIT (1-T)

Answer 44

NOPAT or Net Operating Profit After Taxes

Question 45

Profit a company would generate if it had no debt and held only operating assets

Answer 45

NOPAT or Net Operating Profit After Taxes

Question 46

Difference between market value of a firm’s equity and the book value

Answer 46

Market Value Added (MVA)

Question 47

Estimate of a business’s true economic profit for a given year; excess of NOPAT over capital costs

Answer 47

Economic Value Added (EVA)