Financial-Balance Sheet Part 2 Flashcards
Definition of Capex
Capital expenditures are the capital purchases that are carried on the balance sheet and depreciated over time.
Definition of Fixed Assets
Fixed Assets are defined by SLB as items:
- That cost over $5,000,
- Have a useful life greater than 2 years
- Have a serial number
All three of these criteria must be met in order to capitalize
How often fixed assets count are done?
Once every 2 years.
What does GBV stand for and what is equal to?
Gross Book Value = Acquisition price (original purchase price)
What does NBV stand for and what is equal to?
Net Book Value = GBV - Accumulated depreciation (sum of depreciation to date)
This is the current value of a fixed asset.
What is Gross Asset Turns?
Gross Asset Turns = Net Revenue/GBV (Relates to Asset Replacement Value; when it is time to dispose of unused assets)
What is Net Asset turns?
Net Asset turns = Net Revenue/NBV
Relates to improving ROI; help us to understand asset utilization efficiency
What is ageing?
Ageing = NBV/GBV
Indication of age of fleet. (Low ration would suggest that we are not investing in new technology)
What is Liquidity?
This is how fast an asset can be converted into cash
Liquidity = Net income + depreciation - capex + delta (short term assets and liabilities).
What is Cash Flow? What are their categories?
It is the way company decides how to spend the money (3 categories)
Operating Activities: Directly related to the operation of the business.
Investing Activities: Relates to items like the buying/selling of assets.
Financial Activities: Relates to items such as buying/selling stocks.
Difference between Profit and Cash
Profit is the revenue that company has earned, but cash is not collected. (Like end of the months tickets)
Cash is the money that the company physically has in the bank.
How can we improve Liquidity?
Increasing revenue and reducing costs.
Decreasing receivables making sure we get the cash faster, revenue cycle as fast as we can.
Increase payable with vendors/suppliers, lengthen payment terms. This will ensure more cash on hand.
