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Corporate Finance - Basics > The Income Statement > Flashcards

The Income Statement Flashcards

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1
Q

Total Sales Revenue

A

Total amount of all products sold during the period

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2
Q

Cost of Sales

A

Cost to produce those products

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3
Q

Gross Profit

A

The difference between total revenue and the cost of sales

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4
Q

Gross Margin

A

Gross Profit / Total Sales

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5
Q

R & D

A

Research & Development

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6
Q

S G & A

A

Selling, General & Administrative

expenses related to marketing, legal and corporate overhead, HR administration, investor relations, and other corporate overhead

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7
Q

Stock-based Compensation

A

Fair market value of stock and option grants given to employees

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8
Q

Depreciation & Amortization

A

Depreciation of property, plant, and equipment and intangible assets

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9
Q

Operating Income

A

Gross profit less operating expenses

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10
Q

EBIT

A

Earnings Before Interest & Taxes

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11
Q

EBITA

A

EBITA is equal to earnings plus interest, taxes and amortization

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12
Q

EBIT Margin

A

EBIT / Total Sales

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13
Q

EPS

A

Earnings Per Share

Net Income / Average Shares Outstanding during the period

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14
Q

Net Present Value

A

The NPV of a project is the sum of the present value of all cash flows associated with the project over its life.

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15
Q

Why use the NPV method?

A

The NPV method can be used to determine whether a firm should undertake a project.

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16
Q

Positive NPV, what is it?

A

NPV > 0

Will increase shareholder wealth therefore should be undertaken.

17
Q

Negative NPV, what is it?

A

Negative NPV will decrease shareholder wealth and should be rejected.

18
Q

What is the NPV formula?

A

see attachment

19
Q

Present Value (discounted cash flow)

A
20
Q

Present Value Definition

A

In economics and finance, present value, also known as present discounted value, is the value of an expected income stream determined as of the date of valuation.

21
Q

WACC

A

Weighted Average Cost of Capital

22
Q

WACC Formula Meaning

A

WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight and then adding the products together. In the above formula, E/V represents the proportion of equity-based financing, while D/V represents the proportion of debt-based financing.

23
Q

WACC Formula

A 
WACC	=	weighted average cost of capital
N	=	number of sources of capital (securities, types of liabilities)
r_i	=	required rate of return for security
i	=	security
MV_i	=	market value of all outstanding securities
24
Q

TEV

A

Total Enterprise Value

25
Q

Formula for TEV

A

TEV = Market Cap of Equity + Debt - Cash

26
Q

Describe TEV

A

TEV as the net cost to acquire the business (buying its equity, paying off its debt, but keeping any cash)

27
Q

Discounted Free Cash Flow Meaning

A

Valuing the EnterpriseIn finance, discounted cash flow analysis is a method of valuing a security, project, company, or asset using the concepts of the time value of money.

Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management and patent valuation.

28
Q

Discounted Free Cash Flow Formula

A
29
Q

Venture Capital: Pre-money value

A

Value of the pre-existing shares evaluated at the share price for the current funding round

30
Q

Venture Capital: Post Money Value

A

Value of the final number of shares at the conclusion of the funding round.

Post money value = Pre-money value + The Amount Invested

Amount invested / Post-money value = fraction of shares held by new investors

31
Q

Down Round

A

When the share price of the current investment round is below the share price of the prior round

32
Q

VC Hurdle Rates

A

The VC hurdle rate (i.e. the VC’s required rate of return) is then calculated by dividing the required return on equity calculated using CAPM, for example, by the probability of success.

So, if the CAPM return on equity is 15% and the probability of success is 30%, the VC hurdle rate is 50%.

Corporate Finance - Basics (1 decks)

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