ch 2 discussion video notes Flashcards
Balance Sheet: what is
Current assets - current liabilities
usually positive for a healthy firm
Net Working Capital (NWC)
what is
Net Working Capital =
current assets - liabilities
Liquidity
speed and ease of conversion to cash without sign of loss of value
valuable in avoiding financial distress
A balance sheet
what is a balance sheet?
a screenshot of the firm’s assets and liabilities at a given point of time
Net Working Capital =
current assets - liabilities
Liquidity
speed and ease of conversion to cash without sign of loss of value
valuable in avoiding financial distress
formula for Net Working Capital
Assets - liabilities
ex of assets (balance sheet)
cash
accounts receivable
inventory
TOTAL
Fixed assets
ex of liabilities (balance sheet)
accounts payable
notes payable
TOTAL
long- term debt
owners equity
total liabilities and owner’s equity
what is book value?
The balance sheet value of the assets, liabilities, and equity
what is market value?
true value; the price at which assets, liabilities, or equity can actually be bought or sold
what is
true value; the price at which assets, liabilities, or equity can actually be bought or sold
market value
what is
The balance sheet value of the assets, liabilities, and equity
book value
what is more important book value or market value
market value
income statement formula (net income)
Net income = revenue - expenses
what is an income statement ?
measures the performance at a period of time
reports revenue and expenses paid
GAAP Matching Principle
Recognize revenue when it is fully earned
match expenses require to generate revenue
non cash items:
expenses charged revenue that affect cash flow
depreciation = important
What is marginal tax rate
% tax paid on the nest dollar
what is average tax rate
total taxes paid divided by taxable income
Operating Cash Flow Formula
EBIT + DEPRECIATION - TAXES
Net Capital Spending Formula
end of year FA - Beginning of year FA + DEPRE .
Net Working Capital Formula
End of year NWC - Begin of year NWC
Cash Flow From Asset formula
Operating cash flow - Net capital spending - net working capital
what are the steps to find the Cash Flow From Assets?
- Find the Operating Cash Flow
- Find the Net Capital Spending
- Find the Net Working Capital
cash flow to creditors formula
interest paid - net new borrowing
cash flow to stockholders formula
dividends paid - net new equity raised
