Fin. Statement, Cashflow &taxes Flashcards
Statement of Fin. Position?
Means of organizing and summarizing what a firm owns(assets), what a firm owes(liabilities) and the diff. bet. the two(the firm’s equity)
Statement of Fin. Position is also called ?
Balance Sheet
In 2011, publicly traded firms in Canada switched to?
international financial reporting standards (IFRS).
Under IFRS, a company enjoys flexibility over how to present its statement of financial position.
Types of assets
Current: 1 yr/less than 12 month
Fixed: tangible & intangible
bond and bondholders generically refer to
long-term debt and long-term creditors
Shareholder/Owner/ Common Equity
the difference between the total value of the assets (current and fixed) and the total
value of the liabilities (current and long term)
SFP Equation
Assets = Liabilities + SE
Net Working Capital
Current Asset - Current Liab.
Important things to examine when dealing with SFP
-Liquidity: ease with which an asset can be converted into cash.
-Debt vs equity: Equity
holders are entitled to only the residual value SE= A-L
-Market value vs book value:
MV is the price at which willing buyers and sellers trade the assets WHILE BV/ carrying amt is the accounting value of a firm’s assets
Two dimensions of Liquidity
Easer of Conversion
Loss of Value ( An illiquid asset is one that cannot be quickly converted to cash without a
substantial price reduction.)
Assets are listed inorder of decreasing liquidity list them
CA: cash, AR, inventory(least liquid) , FA
The more liquid a business is ?
the less likely it is to experience financial distress
Financial Leverage ?
The use of debt in a firm’s capital structure. Financial leverage
increases the potential reward to shareholders, but it also increases the potential for financial distress and
business failure.
Statement of Comprehensive Income
measures performance over some period of time, usually a year. REV-EXP = Inc.
How to explain SFP&SCI
If you think of the statement of financial position as a snapshot, then you can think of the statement of
comprehensive income as a video recording covering the period between, before, and after.
Net Income is also called ?
Bottom Line and its often expressed per share basis (earnings per share)
why is accountig income different from cash flow
a statement of comprehensive
income contains non-cash items. The most important of these is depreciation.
Cash Flow from assets
operating cash flow, capital spending, and additions to
net working capital.
what is the cash flow identity
?
It says that the cash flow from the firm’s assets is equal to the cash flow paid
to suppliers of capital to the firm.
Individual tax rate
apply to income from employment & from unincorporated businesses
Diff. between Average and Marginal Tax rate
Average: tax bill divided by your taxable income; i.e the percentage of your income that goes to pay taxes. Your marginal tax rate is the extra tax you would pay if you earned one more dollar.
the larger CCA rates ?
reduces taxes and increase cash flows.
