Chapter 2 slides/vid Flashcards
A snapshot of the firm’s assets and liabilities at a given point in time is located on
Balance Sheet
Where are assets located on the balance sheet?
Left-hand side
in decreasing liquidity order
Where are liabilities and owner’s equity located on the balance sheet?
Right hand side
In ascending order of when due to be paid
What is the balance sheet identity/formula?
Assets=Liabilities + Stockholders’ Equity
What is the formula for net working capital?
Current assets - current liabilities
T/F- The networking capital is usually positive for a healthy firm
True
The speed and ease of conversion to cash without significant loss of value is known as
Liquidity
Why is liquidity valuable
in avoiding financial distress
What is the Debt versus equity formula?
Shareholders’ equity= Assets- Liabilities
The balance sheet value of the assets, liabilities, and equity is known as the
Book Value
The true value; the price at which assets, liabilities, or equity can actually be bought or sold is known as
Market Value
Which statement measures performance over a specified period of time like period, quarter, or year. The statement reports revenues first and then deducts any expenses for the period?
Income Statement
What is the income statement equation?
Net Income= Revenue - expenses
What is the end result of the income statement
Net Income or “Bottom Line”
Which financial statement recognizes revenue when it is fully earned and match expenses required to generate revenue to the period of recognition?
GAAP Matching Principle
Expenses charged against revenue that do not affect cash flow are known as
Noncash items
What is the most important non cash item?
Depreciation
slide 2-13?
T/F-Publicly traded companies must file
regular reports with the Securities and
Exchange Commission
True
Publicly traded companies must file regular reports with the Securities and
Exchange Commission these reports are then usually filed electronically and can be searched at the?
SEC public site called EDGAR
What are the two types of tax rates we will be discussing in chapter 2?
Marginal
Average
Which type of tax rate is a %tax paid on the next dollar earned?
Marginal
Which type of tax rate are divided up by the total tax bill by taxable income
Average Tax Rates
One of the most important
pieces of information that can be derived from financial statements is
Cash Flows
T/F- the cash flows we are discussing finance does NOT provided the same information of the accounting statement of cash flows
True
What is the focus of the Cash Flows in finance?
how cash is generated from
utilizing assets and how it is paid to those who finance the asset purchase
How cash is generated from
utilizing assets and how it is paid to those who finance the asset purchase is the main focus of what term in finance?
Cash Flows
What are the TWO formulas for the Cash Flow From Assets (CFFA) equation?
CFFA= Operating Cash Flow - Net Capital Spending - Changes in NWC
CFFA = Cash flow to creditors(CF/Cr). + Cash Flow to Stockholders (CF/SH)
How do you calculate the operating cash flow?
Earnings before interest and taxes + depreciation - taxes
How do you calculate net capital spending?
Ending net fixed assets - beginning net fixed assets + depreciation
How do you calculate change in net working capital?
(Total for current assets - current liabilities) for year 2 - (Total for current assets - current liabilities) for year 1
How do you calculate cash flow to creditors (bondholders)
Interest paid- net new borrowing
How do you calculate cash flow to stockholders (owners)
Dividends paid - net new equity raised
