Sec. 1 - Ch.3: Financial Statements & Cash Flow Flashcards
How do you calculate Net Worth?
Net Worth = Assets - Liabilities
What are Cash & Cash Equivalent Examples?
Cash, checking accts, money market deposit accts, money market funds, savings accts, CDs close to maturity, & laddered CDs
What are Investment Asset Examples?
Variable & Fixed annuities, pensions, IRAs, Roth IRAs, business interests, mutual funds, stocks/bonds, real estate & collectibles owned for investment purposes
Are Life Insurance Cash Values considered cash equivalents? Why?
No, because there can be a delay in distributing funds (delay cause)
What are Use Asset Examples?
Home, personal property, vacation homes, cars/recreational vehicles, and collectibles for personal enjoyment
What is a Balance Sheet or Statement of Financial Position?
It shows a clients net worth at a point in time
Looks at Assets & Liabilities at FMV
What is the Statement of Cash Flows
It looks at a clients cash flows in a given year
Includes Inflows, Fixed Outflows, Variable Outflows, and Taxes
How is the balance sheet and cash flows statement connected?
Whatever the cash flows surplus/deficit is will be used to show an increase of decrease in the clients net worth
What is the definition of FMV?
The value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell
What is the Capitalized Value? How is it calculated?
The projected flow of income from a business
Equation - Capitalization Value = Annual Income/Capitalization Rate
What is the pro forma statement?
It projects the expected profitability or return of the next year or longer. It will estimate the excess of income over expenses and allows business owners to plan investment or spending for the projected excess
What information is gathered to prepare the Statement of Financial Position?
Cost or basis, Encumbrances (reserved funds for an anticipated expense), savings and investment allocations, date assets were acquired
