Financial Statements

Question 1

Income Statement

Answer 1

This lists a company’s revenue, expenses and taxes. At the end of the income statement, you have the after-tax income. All items on this statement fulfil two criteria: have the duration of the income statement (1 year) and are tax deductible. For instance, yo uwould include the interest that you pay of adebt since it is tax deductible but you would not include the debt you pay off the principle

Question 2

Balance Sheet

Answer 2

Balance sheet lists a companys assets, its resources, its liabilities, what it owns and shareholders equity

Question 3

The four sections on an Income Statement are

Answer 3

1. Revenue and COGS. Revenue is the value of all the services/products provided by the company whereas COGS are all the costs directly associated to those sales.
2. Operating Expenses: All the expenses involved in providing the service/product, such as employee salaries, rent, marketing, and non cash expenses- depreciation and amortisation
3. other income and expenses: interest, gains and losses when assets are sold
4. Taxes and net income: net income = revenue-expenses-taxes

Question 4

What items always appear on an Income Statement

Answer 4

The items that always appear on the IS are those that are tax deductible and have the same duration as the Income Statement (1 year). Eg: Revenue, COGs, operating expenses such as employee salaries, rent, marketing, stock based compensation, interest, gains/losses) write downs, other income

Question 5

What never appears on an Income Statement

Answer 5

Items which are not tax deductible and those which do not last 1 year, such as: CAPEX, purchaisng/selling investments, divided, issuing/repaying debt principle, changes to balance sheet items, accounts receivables, accounts payable

Question 6

What is a Balance Sheet

Answer 6

A balance sheet is one of the three main financial statements that indicate the company’s assets, liability and shareholder equity. Your assets are always equivalent to the liabilities + equity therefore the balance sheet is always in balance.

Question 7

What is an asset

Answer 7

An asset is a resource, something you own that may be sold for additional cash in the future. There are current assets and long term assets

Question 8

What is a liability

Answer 8

A liability is something that you owe. These may result in less cash in the future and typically are in the form of debt-money owed to external parties

Question 9

What is equity

Answer 9

Equity items are similar to liabilities (typically used to fund a business) but they refer to the company’s own internal operations rather than external parties

Question 10

Cash

Answer 10

Cash like cash in your bank account. It is the lifeline of a company

Question 11

short term investments

Answer 11

less liquid than cash - CDs

Question 12

Accounts Receivable

Answer 12

The company has recorded the revenue on the income statement but has not received the cash yet

Question 13

prepaid expense

Answer 13

a prepaid expense is an expense-paid early on by the company. it has not been recorded in the income statement yet

Question 14

inventory

Answer 14

what is needed to be manufactured and sold into products

Question 15

PP&E

Answer 15

Factories, buildings, land, equipment. Lasts over a year and involves company equipment

Question 16

other intangible assets

Answer 16

patents, trademarks, intellectual property

Question 17

long term investments

Answer 17

less liquid, longer lasting investments than cash or short term investments

Question 18

Types of Liabilities

Answer 18

Revolver: burrowed money that must be paid quickly

Accounts payable: company has recorded these expenses on income statement yet

Accrued expense: company has recorded this on the IS but has not paid it out in cash yet

Deferred revenue: the company has collected cash in advance from customers for products/services yet to be delivered

Question 19

Revolver

Answer 19

Similar to a credit card