Financial Fundamentals Flashcards
Income statement:
This reports on a company’s expenses and profits to show whether the company made or lost money. It also displays the revenues of a specific period and the costs and expenses charged against these revenues. In contrast with the balance sheet, which represents a single moment in time, the income statement represents a period of time
Statement of changes in stockholders’ equity:
This explains the company’s equity throughout the reporting period. The statement breaks down changes in the owners’ interest in the organization and in the application of retained profit or surplus from one accounting period to the next. The line items typically include profits or losses, dividends paid, redemption of stock, and any other items credited to retained earnings.
Balance sheet:
This reports on a company’s assets, liabilities, and ownership equity. A balance sheet is often described as a “snapshot of a company’s financial condition” at a single point in time. It is usually presented with assets in one section and liabilities and net worth in the other.
Cash flow statement:
This shows how changes in income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. As an analytical tool, it is useful in determining the short-term viability of a company.
Cash Flow
The sum of cash revenues and expenditures over a period of time.
GAAP
Generally Accepted Accounting Principles; refer to the standard framework of guidelines, conventions, and rules accountants are expected to follow in recording, summarizing, and preparing financial statements in any given jurisdiction.
IFRS
International Financial Reporting Standards; the major accounting standards system used outside of the United States.
Statement of changes in stockholders’ equity:
This explains the company’s equity throughout the reporting period. The statement breaks down changes in the owners’ interest in the organization and in the application of retained profit or surplus from one accounting period to the next. The line items typically include profits or losses, dividends paid, redemption of stock, and any other items credited to retained earnings.
Investing Activities
Actions where money is put into something with the expectation of gain, usually over a longer term.
Merger
The legal union of two or more corporations into a single entity, typically assets and liabilities being assumed by the buying party.
Financing
A transaction that provides funds for a business.
Net Working Capital
Net Working Capital = Current Assets – Current Liabilities
Debt-to-Equity Ratio
Debt-to-Equity Ratio = Total Liabilities ÷ Shareholders’ Equity
Total Changes to Equity
Ending Equity = Beginning Equity +/− Changes to Common or Preferred Stock and Capital Surplus +/− Net Income/Loss (Net Profit/Loss Earned During the Period) − Dividends
Accounting Equation
Assets = Liabilities + Owner’s Equity
Financing Activities
Actions where money is flowing between the company and investors in the company, such as banks and shareholders.
Free Cash Flow
Net income plus depreciation and amortization less changes in working capital less capital expenditure.
Net Income
Gross profit minus operating expenses and taxes.
Gross Profit
The difference between net sales and the cost of goods sold
FIFO
Stands for first-in, first-out; a method for accounting for inventory that assumes the oldest inventory items are recorded as sold first.
LIFO
Stands for last-in, first-out; a method for accounting for inventory that assumes the most recently produced items are recorded as sold first.
Assets
Something or someone of any value; economic resources representing the value of ownership that can be converted to cash.
EBIT
A measure of the profitability of a business; it stands for “earnings before interest and taxes.”
Equity
The residual claim or interest to investors in assets after all liabilities are paid.
