Review of Financial Statements Flashcards
Which matters more to financial analysts, the cash flows or net income? Why?
CASH FLOWS matter more because they do not take into account things like depreciation (more accurate in terms of the actual intake and output of cash)
A balance sheet assesses the firm:
a) over a period of time
b) at one specific period in time
b - at one specific period in time
Current assets have a life of…
less than one year
Current liabilities have a life of…
less than one year
Fixed assets have a life of…
greater than one year (PPE, for example)
What is the main balance sheet equation?
assets = liabilities + equity
Investment decision pertain to the __________ on the balance sheet.
assets
Financing decisions pertain to the ________________ on the balance sheet.
liabilities and equity
Cash, marketable securities, accounts receivable and inventory are all examples of…
current assets
Short-term debt, accounts payable, accrued taxes, and accrued compensation are all examples of…
current liabilities
net working capital =
current assets – current liabilities
How to find the book value:
identical to the stockholder equity on the balance sheet
How to find the market value:
market value =
(# of shares outstanding) * (price per share)
The market value of equity is equal to the…
aggregate shareholder wealth! (what firms want to MAXIMIZE!)
An income statement assesses the firm:
a) over a period of time
b) at one specific point in time
a - over a period of time
