Chapter 3: Financial Statements, Cash Flow, and Taxes Flashcards
What is an annual report?
- Annual report
- From corporations -> stockholders
- Financial Statements
- Management analysis of past events and future prospects
What four financial statements found in annual report?
- Balance sheet
- Income statement
- Cashflow statements
- Stockholders’ equity statements
What is a balance sheet?
- Financial standing
- Specific point in time
What is stockholders’ equity?
- Original capital invested by stockholders
- Earnings retained by company
What is retained earnings?
- Cumulative total earnings held by company
What is working capital?
- Current assets
What is net working capital?
Current assets - current liabilities
What is net operating working capital?
Current assets - non interest bearing current liabilities
What is income statement?
- Summarises revenues, expenses and profit
What is operating income?
- Earnings before interests and taxes
What is depreciation?
- Charge of assets depletion during production
What is amortisation?
- Similar to depreciation
- Charge of non-tangible assets E.g Patents, copyrights
What is EBITDA?
- Earnings before interests, taxes, depreciation and amortization.
What is statement of cash flows?
-Shows how items affect balance sheet and income statement affect firm’s cash flows
What is the statement of stockholder’s equity?
Describes how the company’s equity had changed and why did it happen.
What is free cash flow?
- Ability of company to use cash without harming is ability to operate and produce future cash flows.
What is Net Operating Profit After Taxes (NOPAT)?
- Profit company generates
- No debts
- Only operating assets
What is Market Value Added? (MVA)
The difference in the market value of equity over its book value (historical cost).
What is Economic Value Added (EVA)
- Excess of NOPAT over capital costs
- True profit after removing capital costs from NOPAT
What is progressive tax?
-Higher tax rate for higher tax income.
What is marginal tax rate?
- Calculated from the base amount of the tax bracket.
What is average tax rate?
Taxes paid divided by taxable income.
