Financial Statement Terms Flashcards
Revenue
The money received when a company/business delivers a good/service.
Present Value of Money
It is the current worth of a future cash flow given the current discount rate or the rate of return
Money today is worth more than money tomorrow
Net Present Value
Present Value of CF - Initial Investments
inflows - outflows
Intrinsic Value
Present value of future cash flows
Weighted Average Cost of Capital (WACC)
the “weighted opportunity cost” of investing, it has a number of discount rates for the different types of possible investment that could have been made elsewhere
Internal Rate of Return
Internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. This represents the actual returns and it means that you break even on an investment
Costs of Goods Sold
“per unit” expenses of selling products/ services
Gross Profit
how much additional potential profit you could potentiall make on each sale (before other expenses)
Revenue - COGS = Gross Profit
Operating Expenses
Any expense you can’t link directly to individual units sold, so sales and marketing, salaries + wages paid, etc.
Operating Income (EBIT)
Gross Profit - Operating Expenses
“how much did we earn before non-core activities and interested earned/paid or taxes paid” = pre-tax income,
Operating Margin
Operating Income (EBIT) / Revenue - to see how much you actually earned and how much you end up spending from your revenue
Net Income (“Bottom Line”)
How much did the company really generate after paying taxes and expenses
Can serve as a close proxy to cash generated at the end
Accounts Receivable
Money/cash you have not yet received even after having delivered on the goods/services - waiting to get paid for providing something
Serves a line item under the assets sections on the balance sheet
Prepaid Expenses
Paying in advance for an expense that then has the cost spread out over a number of months even though the whole expense was paid up front
nothing gets recorded in the IS, but adjustments in CFS reflect prepaid expenses
considered as an asset because it’s already paid for and taxable income will fall b/c you spent that money
Accounts Payable
The delayed payment for goods/services
If AP goes UP, cash balance goes “UP” - you just haven’t paid the whole expense yet in cash, but you still add the AP to the net change in cash
Accrued Expenses
Like an accounts payable, but typically apply to expenses that are ongoing (weekly, monthly)
Deferred Revenue
When you get cash but can’t mark on IS until you deliver the products/services - has own line item of “deferred revenue” that gets tracked over time
As you deliver the service/good, DR falls and net income goes up to reflect that you have actually delivered
Inventory
Items that you want to sell as products/services as a part of your business model
Typically pay upfront from the seller, but since you haven’t sold any product after getting the inventory, can’t record on IS
(inventory then gets marked and attributed as an asset b/c contributes to COGS and reduces pre-tax income so you get taxed less in the future)
PP&E, CapEx
Tangible, physical assets that you purchase to last you years in your business model
Counts as an asset because helps save on income tax - the depreciation that occurs lowers the taxable income as you write into IS however, doesn’t reflect cash expense b/c paid for whole expense at once
Depreciation shows up on IS before EBIT, reducing overall net income
Debt
A liability when you borrow money as you run low on cash
Interest Expense
The interest amount paid on the debt - is tax-deductible on IS, overall lowers the net income and cash generated because have to repay debt over time
Listed as liability b/c causes cash to fall in the future
Principal Repayment
Repaying the original amount, not on IS but is recorded in the CFS in the “financing activity” section
Gains and Losses in Selling Assets
Losses - recorded in the iS, but not the principal amount investment, lowers pre-tax income and get a tax break
Gains - if you have gain, you will get taxed when recording on the IS on how much you’ve earned from the sale of the asset
Deferred Taxes
Accounting methods used to help reduce tax burdens through the writing of how PP&E will depreciate in the future to get tax breaks
Deferred Tax Liability
When you’re paying less on the tax schedule vs the book schedule ie, through the accounting tricks
Eventually, will have to end up paying the same amount, but b/c of the TV of money, paying less in the present is worth more than paying in the future
Dividends
Cash not used on the balance sheet that can be used to pay out to investors, typically done by a stable, mature company
Share Repurchases
The buying back of shares/stocks, typically done in public companies to regain more equity
Typically will have to pay a premium to even incentivize that sale process and gain back shares
Stock-Based Compensation
Stock issued to employees as a form of payment.
Non-cash expense, tax0deductible on the IS because payments to employees are internal expenses (like wage), goes before EBIT reducing operating income, boosts cash generated b/c add into CFS as a non-cash charge
Net income down, cash generated up
Write Off of Sellers’ Equity
How much of the original old company had prior to the M&A activity
Goodwill
Premium paid above company’s equity when acquiring it - not readily ID on a BS typically marked as future synergies
Impairments and Write-Downs
The re-evaluation of the value of acquired company to see much it’s actually worth, reflect in goodwill going down as well if PP&E are not useful
Assets
Items that will result (directly or indirectly) in additional cash generated int he future
Includes - accounts receivable, inventory, prepaid expenses, cash , investments, PP&E, goodwill
