Module 2: Long-Term Funding, Investing, & Taxes

Question 1

Define “Capital Expenditures (CapEx)”.

Answer 1

Funds that are used by a company to acquire, upgrade, and maintain physical assets. E.g. property, plants, buildings, technology, and equipment.

Question 2

Define “Property, Plants & Equipment (PP&E)”.

Answer 2

A section on the Balance Sheet that represents a company’s physical or tangible long-term assets.

Question 3

Define “Interest Expense”.

Answer 3

A non-operating expense that is shown on the Income Statement. It represents interest payable on any borrowings. E.g. bonds, loans, convertible debt, or lines of credit.

Question 4

Define “Common Stock (Capital Stock)”.

Answer 4

The standard ownership share of a corporation.

Question 5

Define “Dividends”.

Answer 5

Optional cash payments that are made to each common shareholder., Usually linked to net income, the share price, or a per-share figure.

Question 6

Define “Stock Repurchases”.

Answer 6

When the company offers to buy back shares from existing investors at an agreed-upon price.

Question 7

Define “Preferred Stock”.

Answer 7

Stock that entitles the holder to a “preferred dividend (fixed dividend)”, whose payment takes priority over that of ordinary share dividends. Note, that it is much closer to debt rather than equity, and preferred dividends are listed on the Income Statement.

Question 8

Define “Finance Leases (Capital Leases)”.

Answer 8

A contract entitling a “lessee (renter)” to the temporary use of an asset, and which has the economic characteristics of asset ownership for accounting purposes. Additionally, they usually have an “Ownership Transfer Option”.

Question 9

Define “Operating Leases”.

Answer 9

A contract that allows for the use of an asset, but does not convey ownership rights of said asset. Treated differently under U.S. GAAP.

Question 10

Define “Book Statements”.

Answer 10

The statements that you see when you are looking at public, annual & quarterly announcements.

Question 11

Define “Tax Statements”.

Answer 11

The statements that a company files with it’s government when it pays taxes.

Question 12

Define “Net Operating Losses (NOLs)”.

Answer 12

When a company loses money over a given time period.

Question 13

Define “Deferred Tax Assets (DTAs)”.

Answer 13

An item on a company’s Balance Sheet that reduces a company’s taxable income in the future.

Question 14

Define “Deferred Tax Liabilities (DTLs)”.

Answer 14

A listing on a company’s Balance Sheet that records taxes that are owed, but are not due to be paid until a future date.

Question 15

Explain “Gains/Losses” on Asset Sales”.

Answer 15

These occur when a company purchases an asset and then decides to sell it at a later time, either at a higher or lower price than it previously paid.

Question 16

Define “Write-Downs”.

Answer 16

The reduction in the book value of an asset when its fair market value has fallen below it’s book value, and thus becomes an “impaired asset”.

Question 17

Define “Impaired Asset”.

Answer 17

An asset that has a market value that is less than the value listed on the company’s Balance Sheet.

Question 18

Define “Stock-Based Compensation (SBC)”.

Answer 18

When companies supplement employees’ cash compensation with some form of equity.

Question 19

Define “Other Intangible Assets (OTAs)”.

Answer 19

An asset that is not physical in nature. E.g Goodwill, brand recognition, and intellectual property. OTAs are amortized over time.

Question 20

Define “Goodwill”.

Answer 20

The portion of the purchase price that is higher than the sum of the net fair value of all the assets purchased in an acquisition and the liabilities assumed in the process. Rather than amortize Goodwill, it is checked each year for “impairment”.