Chapter 2

Question 1

Net Working Capital=

Answer 1

Difference between current assets and current liabilities

Question 2

Famous formula=

Answer 2

Shareholders equity = Asset- Liability

Question 3

Financial Leverage:

Answer 3

The use of debt in a firm’s capital structure. (The more debt as firm has, as a percentage of assets, the greater the degree of financial leverage)

Question 4

Book/Accounting Value:

Market Value:

Which is more important to decision-making?

Answer 4

Book value: accounting value of a firm’s current assets

Market Value: price at which buyers and sellers trade the asset–ps it depends on cash flow

Market value is more important to financial managers

Question 5

How to calculate Earning before interest and Tax (EBIT)

How to calculate EBT

How to calculate Net income

Answer 5

Net Sales
-Cost of good sold
-depreciation
= EBIT
Ebit
-Interest
=EBT

Ebt
-Taxes
=Net income

Question 6

Accounting income vs cash flow :

Answer 6

Accounting income: includes non-cash items(Specifically depreciation)

Cash flow:???

Question 7

just look over the forumla sheet and be comfortable with it

Answer 7

I beg of you