Ch 2 Flashcards
Net working capital
Current assets - current liabilities
Balance sheet
Financial statement showing firm’s accounting
Value on a particular day
Tangible assets
Property, plant, equipment
Intangible assets
Patents, copyrights
Liquidity, 2 dimensions?
1 Speed and ease with which an asset can be converted to cash
2 Loss of value occurs with quickly sold illiquid assets
Financial leverage
Use of debt in firm’s capital structure
Shareholder’s equity
SE = assets - liabilities
Generally Accepted Accounting Principles (GAAP)
Common set of standards and procedures by which
Audited financial statements are prepared
Income statement
Financial statement summarizing a firms performance
Over a period of time
Income
Income = revenues - expenses
Earnings per share? Dividends per share?
Earnings per share = net income/total shares outstanding
Dividends/share = total dividends/total shares outstanding
Non cash items
Expenses charged against revenues that don’t
Directly affect cash flow, such as depreciation
Product costs, how are they reported on income statement?
Costs include raw materials, direct labor expense and manufacturing overhead
Reported on income statement as cost of goods sold
Period costs
Incurred in particular time period, reported as selling,
General and administrative expenses
Average tax rate
Total taxes paid/total taxable income
Marginal tax rate
Amount of tax payable on next dollar earned
Cash flow from assets, 2 equations?
Cash flow from assets =
Cash flow from creditors + cash flow from stockholders
Cash flow from assets = operating cash flow -
net capital spending - Change in NWC
NWC = net working capital
Operating cash flow
Cash generated from firms normal business activities
Operating cash flow =
Earnings before interest and taxes (EBIT) + depreciation - taxes
Free cash flow
Another name for cash flow from assets
Cash flow to creditors
Cash flow to creditors =
Firms interest payments - net new borrowings
Cash flow to stockholders
Cash flow to stockholders =
Dividends paid out - net new equity raised
Net capital spending
Net capital spending =
ending net fixed assets - beginning net fixed assets
+ depreciation
