Accounting Statements and Cash Flow Flashcards
The ingredients of a Financial Planning Model:
- Sales forecast (look at the past to look into the future)
- Pro Forma Statement (based on hypothetical situations, also forecasting)
This forecasting will help determine… - Asset Requirements
- Financial Requirements
- Plug (variables)
Based on… - Economic Assumptions
Sales forecast:
all financial plans require a sales forecast , and it feeds into your pro forma statements (they are linked/interdependent)
An Accountant’s snapshot of the firm’s accounting position at a particular date: _ _ _
The accounting definition:
Assets = _______ + __________
An Accountant’s snapshot of the firm’s accounting position at a particular date: Statement of Financial Position
The accounting definition:
Assets = Liabilities + Shareholders’ Equity
When analyzing a SFP, the financial manager should be aware of three concerns: (L DVE VVC)
When analyzing a SFP, the financial manager should be aware of three concerns:
- Liquidity
- Debt versus equity
- Value versus cost
Liquidity refers to the ease and speed with which _____ can be ______ to ______.
Liquidity refers to the ease and speed with which assets can be converted to cash.
Current assets are ____ liquid than long-term assets.
Current assets are more liquid than long-term assets.
The _____ liquid a firm’s assets, the _____ likely it will experience problems meeting short-term obligations.
The more liquid a firm’s assets, the less likely it will experience problems meeting short-term obligations.
Liquid assets frequently have _____ rates of return than long-term assets.
Liquid assets frequently have lower rates of return than long-term assets.
Liabilities are obligations of the firm that require a _______ of cash within a stipulated ______ _____.
Liabilities are obligations of the firm that require a payout of cash within a stipulated time period.
Generally, when a firm borrows it gives the ________ first claim on the firm’s cash flow.
Generally, when a firm borrows it gives the bondholders first claim on the firm’s cash flow.
Shareholders’ equity is the ______ difference between _____ and _______.
Shareholders’ equity is the residual difference between assets and liabilities.
The accounting value of a firm’s assets is frequently referred to as the ______ value or ______ value.
The accounting value of a firm’s assets is frequently referred to as the carrying value or book value.
Market value is a completely different concept. It is the ____ at which willing buyers and sellers _____ the assets.
Market value is a completely different concept. It is the price at which willing buyers and sellers trade the assets.
Whenever we speak of the value of the firm, we will normally mean its market value.
The statement of comprehensive income (SCI) measures _________ over a
specific period of time.
The statement of comprehensive income (SCI) measures performance over a
specific period of time.
The accounting definition of “income” is given by:
_________ – _______ = INCOME
The accounting definition of “income” is given by:
REVENUE – EXPENSES = INCOME
SCI: The operations section reports the firm’s _____ and ______ from _____ operations
SCI: The operations section reports the firm’s revenues and expenses from principal operations
SCI: The _________ section includes other income and all financing costs, including interest expense.
SCI: The non-operating section includes other income and all financing costs, including interest expense.
SCI: Usually a ______ section reports the amount of taxes estimated on income.
SCI: Usually a separate section reports the amount of taxes estimated on income.
SCI: ___ _____ is the “bottom line.”
SCI: Net income is the “bottom line.”
There are three things to keep in mind when analyzing the statement of comprehensive income:
There are three things to keep in mind when analyzing the statement of comprehensive income:
- The accounting standards used – i.e. IFRS
- Non-Cash Items
- Time and Costs
IFRS have been developed to provide information for a _____ audience not necessarily concerned with ____ flow.
IFRS have been developed to provide information for a broad audience not necessarily concerned with cash flow.
IFRS: The ______ basis of accounting is used.
IFRS: The accrual basis of accounting is used.
IFRS: Revenues are recognized when _____ and the earnings process is ______ even though cash flows may not have been received.
IFRS: Revenues are recognized when earned and the earnings process is complete even though cash flows may not have been received.
IFRS: Expenses incurred to earn the revenue are recognized at ____ ____ time the related revenue is reported even though no cash may have been paid.
IFRS: Expenses incurred to earn the revenue are recognized at the same time the related revenue is reported even though no cash may have been paid.
Non-cash items are expenses that do not affect cash flow _____.
Non-cash items are expenses that do not affect cash flow directly. (e.g., depreciation, deferred taxes)
________ is the most common for non-cash items. No firm ever writes a cheque for “depreciation.”
Depreciation is the most common for non-cash items. No firm ever writes a cheque for “depreciation.”
Another non-cash item is _____ taxes, which do not represent a cash flow.
Another non-cash item is deferred taxes, which do not represent a cash flow.
In the short term, certain costs related to equipment, resources, and commitments of the firm are _____; other costs are variable based on ________ levels such
as inputs for labour and raw materials.
In the short term, certain costs related to equipment, resources, and commitments of the firm are fixed; other costs are variable based on production levels such
as inputs for labour and raw materials.
In the long run, all costs are _______.
In the long run, all costs are variable.
Financial accountants do not distinguish between variable costs and fixed costs.
Instead, accounting distinguishes _____ costs from ____ costs .
Financial accountants do not distinguish between variable costs and fixed costs.
Instead, accounting distinguishes product costs (production costs) from period costs (time period costs).
Net Working Capital = _____ – ______
Net Working Capital = Current Assets – Current Liabilities
NWC is ______ when current assets are greater than current liabilities.
NWC is positive when current assets are greater than current liabilities.
A firm can invest in NWC. This is represented by the ____ in NWC and is equal to:
NWC (2018) – NWC (2017) = _____ in NWC in 2018
A firm can invest in NWC. This is represented by the change in NWC and is equal to:
NWC (2018) – NWC (2017) = Change in NWC in 2018
The change in NWC is usually ______ in a growing firm.
The change in NWC is usually positive in a growing firm.
In finance, the most important item that can be extracted from financial statements is the actual ____ ____ of the firm.
In finance, the most important item that can be extracted from financial statements is the actual cash flow of the firm.
In finance, the value of the firm depends on its ability to generate financial ___ ____.
In finance, the value of the firm depends on its ability to generate financial cash flow.
Just as the value of firm’s assets is always equal to the value of liabilities plus equity, the cash received from the firm’s assets must equal the cash flows to the firm’s bondholders (creditors) and shareholders:
CF() = CF() + CF(_)
Just as the value of firm’s assets is always equal to the value of liabilities plus equity, the cash received from the firm’s assets must equal the cash flows to the firm’s bondholders (creditors) and shareholders:
CF(A) = CF(B) + CF(S)
EBIT =
Earnings before interest and taxes (EBIT)
Cash flow from ______ measures cash generated before investment in capital requirements and net working capital.
Cash flow from operations measures cash generated before investment in capital requirements and net working capital.
Net income is based on accruals and deferrals and is not ____ _____.
Net income is based on accruals and deferrals and is not cash flow.
