Chapter 2 Flashcards
What is a Balance Sheet?
Snapshot of the firms assets and liabilities at a given point in time. (Summary of the what the firm owns, assets, firm owes, liabilities, and their difference, equity)
Balance Sheet Identity
Value of assets = Sum of liability and equity
What is Liquidity?
Speed and east assets can be converted to cash
Debt Versus Equity
Shareholders Equity - Equity holders entitled to residual value.
Book Value
Balance sheet value of assets, liabilities and equity
Market Value
Price of assets, liabilities and equity can be bought/sold NOW
Income Statement
Measures performed over a period of time. (Revenues - expenses = Income)
Marginal Tax
Percentage of tax paid on the next dollar earned.
Average Tax
Total Tax paid/Taxable Income
Cash Flow
Difference between number of dollars that came in and the number that went out.
Generation from utilizing assets and how it is 00paid to those who finance the asset purchases.
CFFA Formula
= OCF - CAPEX - NWC
OCF Formula
= EBIT + Depreciation - Taxes
Operating Cash Flows (OCF)
Cash resulted from firms normal business activities
Capital Spending (CAPEX)
net spending on fixed assets
Change in Net Working Capital (Delta NWC)
Amount spend on net working capital.
Free Cash Flow
Cash that is free to distribute to creditors and stockholders b/c unneeded for working capital or fixed asset investments.
FCF Formula
Same as CFFA = OCF - Operating Investments
