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Corporate Finance > Chapter 2 Textbook > Flashcards

Chapter 2 Textbook Flashcards

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1
Q

The *** is a snapshot of the firm

A

Balance Sheet

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2
Q

A convenient means of organizing and summarizing what a firm owns (assets), what a firm owes (liabilities), and the difference between two (firm’s equity) at a given point in time is referred to as the

A

Balance Sheet

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3
Q

A financial statement showing a firm’s accounting value on a particular date is known as

A

Balance Sheet

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4
Q

A debt that is not due in the coming year is classified as a

A

Long-term liability

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5
Q

The difference between the total value of the assets and the total value of the liabilities is known as the

A

Shareholders’ Equity also known as common equity

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6
Q

The difference between a firm’s current assets and its current liabilities is called

A

Net Working Capital

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7
Q

When is networking capital positive?

A

When current assets exceed current liabilities

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8
Q

What are the three particularly important things to keep in mind when examining a balance sheet?

A
  • Liquidity
  • Debt versus equity
  • Market value versus book value
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9
Q

What term refers to the speed and ease with which an asset can be converted to cash

A

Liquidity

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10
Q

What is the accounting formula?

A

Assets= Liabilities + Shareholders’ equity

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11
Q

What is the formula to calculate shareholders’ equity?

A

Shareholders’ equity= Assets - Liabilities

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12
Q

T/F- If the firm sells its assets and pay its debts, whatever cash is left belongs to the shareholders

A

True

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13
Q

The use of debt in a firm’s capital structure is called

A

Financial Leverage

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14
Q

T/F- The more debt a firm has (as a percentage of assets), the greater is its degree of financial leverage

A

True

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15
Q

The amount of cash a firm would get if they actually sold the product is known as

A

Market Value

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16
Q

The common set of standards and procedures by which audited financial statements are prepared is known as

A

Generally Accepted Accounting Principles (GAAP)

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17
Q

What the asset can be sold for represents the

A

Market Value

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18
Q

What the asset was actually bought for represents the

A

Book Value

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19
Q

What is an example of why a market value and book value could be different?

A

Historically - bought a house in 1920s for $15k and it has been in the family since well the market value of the house now is 250K

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20
Q

What is the formula for the income statement?

A

Revenue- Expenses = Net Income

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21
Q

A financial statement summarizing a firm’s performance over a period of time is known as

A

Income Statement

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22
Q

T/F- Net Income often is expressed on a per-share basis and is called earnings per share

A

True

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23
Q

What is the primary reason that accounting income differs from cash flow is?

A

income statement contains non cash items

24
Q

Expenses charged against revenues that do not directly affect cash flow such as depreciation is an example of

A

Noncash Items

25
Q

What is the debt versus equity formula?

A

Shareholders equity = Assets - Liabilities

26
Q

slide 8

A
27
Q

What is the most important non cash item?

A

Depreciation

28
Q

The true value of any asset is known as

A

Market Value

29
Q

The amount of cash we would get if we actually sold it is known as

A

Market Value

30
Q

The values shown on the balance sheet for the firm’s assets is known as

A

Book value

31
Q

T/F- Book values are generally not what the assets are actually work

A

True

32
Q

Publicly traded companies must file regular reports with the

A

Securities and Exchange Commission (SEC)

33
Q

Where are the SEC reports usually filed electronically and can be searched at the ** public site

A

EDGAR

34
Q

The % tax earned on the next dollar earned is known as

A

Marginal Taxes

35
Q

The total tax bill divided by the taxable income is known as the

A

Average Rate Taxes

36
Q

What is the earnings per share formula?

A

Net Income DIVIDED BY Total Shares outstanding

37
Q

What is the dividends per share formula?

A

Total dividends DIVIDED BY Total Shares Outstanding

38
Q

T/F- In the long run, all business costs are variable

A

True

39
Q

What type of costs include things like raw materials, direct labor expense, and Manu o/h

A

Product Costs

40
Q

What type of costs include selling costs, general costs, and admin expenses?

A

Period Costs

41
Q

Corporations frequently like to show investors that they have steadily growing earnings. TO do this, they may take steps to overstate or understate earnings at various times to smooth out dips and surges. This is known as

A

Earnings Management

42
Q

What is the cash flow from asset formula?

A

Cash flow from assets = Cash flow to creditors + Cash flow to stockholders

43
Q

The difference b/w the number of dollars that came in and the number that went out is defined as

A

Cash Flow

44
Q

The total cash flow to credits and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and change in net working capital is known as

A

Cash flow from assets

45
Q

What are the three components of cash flow from assets?

A

Operating Cash Flow
Capital Spending
Change in networking capital

46
Q

The cash flow that results from the firm’s day-t-day activities of producing and selling is known as

A

Operating Cash Flow

47
Q

What term refers to the net spending on fixed assets ( purchases of fixed assets less sales of fixed assets)?

A

Capital Spending

48
Q

The amount spent on net working capital that is measured as the c change in net working capital over the period being examined and represents the net increase or decrease in current assets over current liabilities is known as

A

The change in net working capital

49
Q

Revenues minus costs NOT counting depreciation is the formula for what cash flow?

A

Operating Cash FLow

50
Q

Operating Cash Flow MINUS Net Capital Spending MINUS Changes in Net Working Capital =

A

Cash Flow from Assets

51
Q

What is the formula for operating cash flow?

A

= Earnings before interest and taxes + Depreciation - Taxes

52
Q

What is the formula for Net Capital Spending?

A

= Ending net fixed assets - Beginning net fixed assets + Depreciation

53
Q

What is the formula for change in networking capital?

A

Ending NWC- Beginning NWC

54
Q

What is the formula for cash flow to creditors?

A

= Interest paid - Net new borrowing

55
Q

What is the formula for cash flow to stockholders?

A

= Dividends paid - Net new equity raised

56
Q
A

Corporate Finance (8 decks)

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