Chapter 2 Flashcards

1
Q

Financial statements

A

i) balance sheet
ii) income statement
iii) statement of cash flows
iv) statement of changes in shareholders’ equity

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2
Q

Asset book value

A

value after accumulated depriciation

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3
Q

Shareholder equity

A

Assets - Liabilities (worth of the firm)

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4
Q

Assets = ?

A

Liabilities + Shareholders Equity

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5
Q

Firm’s market value

A

market price per share * shares

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6
Q

Liquidation value

A

what would be left if the firm sold all its assets and paid its liabilities

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7
Q

Market - Book ratio

A

market value of equity / book value of equity

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8
Q

What does a >1 Market Book ratio mean?

A

That the value of the firm’s assets as used currently exceeds their liquidation value

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9
Q

Debt- equity ratio (Leverage)

A

Total debt / Total equity

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10
Q

Value stocks

A

low market to book ratio

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11
Q

Growth stock

A

high market to book ratio

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12
Q

Enterprise value

A

Market capitalization + debt - cash

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13
Q

EPS (earnings per share)

A

Net Income / Shares outstanding

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14
Q

Gross margin

A

Gross profit / sales

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15
Q

Operating margin

A

Operating income / sales

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16
Q

Net profit margin

A

Net Profit / Sales

17
Q

Asset turnover

A

Sales / Total assets

18
Q

Fixed asset turnover

A

Sales / Fixed assets

19
Q

Accounts receivable days (average collection period or days sales outstanding)

A

Accounts receivable / Average daily sales

20
Q

Inventory turnover

A

Cost of goods sold / inventory

21
Q

Interest coverage ratio

A

Interest / Earnings

22
Q

Return on equity

A

Net income / Book value of equity

23
Q

Return on assets

A

Net income / Total assets

24
Q

DuPont identity

A

(Net income/sales) * (Sales/ Total assets) * (Total assets/ total equity) {profit margin x asset turnover x equity multiplier} these are the key drivers of net income.

25
Price-Earnings ratio (P/E)
Market capitalization / Income = Share price / Earnings per share
26
Income Statement
Shows revenues and expenses over a period. Bottom line shows the Net income, a measure of post taxation profitability.
27
Statement of cash flows
Measures the change in cash over a period. Divided by 3 parts. a) operating activities b) investment activities c) financing activities
28
Auditor
neutral third party that ensures that corporations' financial statements are prepared according to GAAP and IFRS (Reporting standards). To verify the info is reliable.
29
Earnings
what is left for the shareholders once all expenses have been paid for
30
Dilution
growth in the amount of shares in a corporation, reducing the earnirngs per share
31
Off-balance-sheet transactions
joint ventures, operating lease, R&D
32
Sarbanes-Oxley Act
2002, the US Congress passed the Sarbanes-Oxley Act. This act requires, among other things, that CEOs and CFOs of US corporations certify the accuracy and appropriateness of their firm’s financial statements. Penalties if statements proved fraudulent.