Module 7 Flashcards
_________ financials is an important part of accounting skills and is used by managers, financial analysts, and
investors to predict future potential revenue streams, expenses, and cash flows.
Forecasting
_______ financial statements are one of the most common types of financial forecasts.
Pro-forma
The __________ forecasting method is often used and involves determining future expected sales and finding trends amongvarious accounts in the financial statements.
percent of sales
In forecasting _______ and _______, while longer term
planned capital expenses may roughly mirror sales, we will often use more detailed descriptions about planned
purchases in the notes sections of financial statements as the basis of our forecast.
PPE; depreciation
_______, which, if the business is stable, generally can be estimated as a certain percentage of income before taxes.
income tax expense
A company that may need additional funding, meaning an _______ in borrowings, will have _______ income expense.
increase; increased
How does one calculate retained earnings?
Retained Earnings = Net Income + Retained Earnings Account balance of Prior Year
Any _______ to be paid need to be subtracted
from retained earnings.
dividends
Another important component in planning and evaluating the future of a business is to look at the expected ________ that the company will generate.
cash flows
What is the equation to estimate free cash flows?
FCF = (1-t) x EBIT + DEP - CAPX - Delta NWC
FCF?
Free Cash Flows
t?
tax rate
EBIT?
Earnings Before Interest and taxes
DEP?
Depreciation and Amortization
CAPX?
Capital Expenditures
Delta NWC?
Change in Net Working Capital
Stakeholders must consider the _____________ because a dollar received today is worth more than one that would be received a year from now due to opportunity costs, inflation, and the certainty of payments.
time value of money
For simplicity we often translate all cash flows to the value that they would be worth today, the __________.
“present value”
What is the rate that would otherwise be available in the market or the rate that best captures the risk inherent in the project being evaluated?
discount rate
We can use the ___________ to determine the terminal value of the cash flows.
Gordon Growth model
What number gives a good indication of what a business or a particular investment is worth today?
Net Present Value (NPV)
It is important that the NPV uses only _______ cash flows in the analysis.
relevant
Costs that will be incurred whether we go ahead with the project or not are also _______ for this decision.
irrelevant
The _______ of a project will change as the assumptions that go into the NPV model, such as the cash flows and discount rate, change.
valuation
The _______ is the discount rate that sets the NPV of a project equal to zero and allows us to see the percentage rate that would be earned for a given set of cash flows.
Internal Rate of Return (IRR)
The _________ tells us how fast the investors can expect to have their money returned.
payback period
The _________ ignores the time value of money and the cash flows that occur after the payback period.
payback period
