Financial Statement Analysis Flashcards
What is net working capital and what does it measure?
Total current assets- total current liabilities. Used to measure the short-term liquidity of a business
Why do market values of assets and liabilities do not generally equal their book values?
Book value is the value on paper (the books) and market value is the value on the market.
What are the three parts of a statement of cash flow?
- Operating
- Investing
- Financing
What is the difference between the income statement and the statement of cash flow?
- Cash flow statement shows exactly how much money a company has received and how much it has spent( can it pay its bills?)
- Income statement statement measures financial performance.
What is the link between balance sheet and income statement?
Net income on the income statement and equity account on the balance sheet.
What is the link between balance sheet and cash flow statement?
Net profit
Show the links between the three financial statements.
The income statement describes how the assets and liabilities were used in the stated accounting period. The cash flow statement explains cash inflows and outflows, and it will ultimately reveal the amount of cash the company has on hand, which is also reported in the balance sheet.
What is the definition of cost of sales?
the direct costs attributable to the production of the goods sold by a company.
What is the definition of account receivables?
the outstanding invoices a company has or the money the company is owed from its clients.
What is the definition of account payables?
an entity’s obligation to pay off a short-term debt to its creditors.
What is the definition of goodwill?
AKA “purchase consideration” the cost to purchase the business minus the fair market value of the tangible assets, the intangible assets that can be identified, and the liabilities obtained in the purchase.
What kind of statements do firm on the stock exchange have to disclose regularly to the SEC, and what is the name of those reports?
Reports such as 10-K or 10-Q from corporations must be filed with the Securities and Exchange Commission (SEC). These have all the forms of financial statements.
What is the purpose of the balance sheet?
Shows assets of the firm and how it has financed these assets.
What is the purpose of the income statement?
Contains information on the profitability of the firm during some period of time, in contrast to the balance sheet at a fixed point in time
What could a company do with excess cash on its balance sheet?
Reward Investors and Lenders, invest in the Company’s Future, or Improve Operations
