Lecture 13. Company Finance I Flashcards
Why are financial statements important?
The reflect the financial health of a company.
What are the two most important financial statements?
Income statement (or profit and loss) Balance sheet
What is a balance sheet?
Point in time where the income statement shows the earning (and expenses) or enrichment over time.
What is an income statement?
Show whether or not a company’s business is profitable.
What does an income statement show?
Profit or loss over financial year
Steps to an income statement?
- Establish revenue
- Minus direct cost of making that revenue giving gross profit/margin
- Minus operating expenses giving operating profit
- Minus financial costs giving profit before income tax
- Minus tax to get net profit for period
What are the three major items in a balance sheet?
Assets
Liabilities
Equity (net worth)
What are total assets a sum of?
- Total current assets (and cash, investments, account receivables and estimated work done but not billed)
- Fixer or non-current assets, not very liquid or long term assets (?)
What are liabilities a sum of?
- Current liabilities (accounts payable to subs/suppliers, accured expenses, excess billings for work not done yet, bank overdraft etc ???)
- Non-current or long term liabilities (long term bank loans, mortgages or equipment, building, land, cars etc)
Liabilities in short?
Obligations to third parties.
Current = debts has to pay of during a year.
Long term = payback period of more than a year.
What is equity the sum of?
Capital, stock and retained earnings.
What is equity?
The capital investment by the owners of a company (owners or stockholders equity or net worth)
Accounting equation for equity?
Equity + total liabilities = total assets
What is working capital a measure of?
Short term financial strength
What is the equation for working capital?
Working capital = Current assets - current liabilities
