Chapter 2 slides/vid

Question 1

A snapshot of the firm’s assets and liabilities at a given point in time is located on

Answer 1

Balance Sheet

Question 2

Where are assets located on the balance sheet?

Answer 2

Left-hand side
in decreasing liquidity order

Question 3

Where are liabilities and owner’s equity located on the balance sheet?

Answer 3

Right hand side
In ascending order of when due to be paid

Question 4

What is the balance sheet identity/formula?

Answer 4

Assets=Liabilities + Stockholders’ Equity

Question 5

What is the formula for net working capital?

Answer 5

Current assets - current liabilities

Question 6

T/F- The networking capital is usually positive for a healthy firm

Answer 6

True

Question 7

The speed and ease of conversion to cash without significant loss of value is known as

Answer 7

Liquidity

Question 8

Why is liquidity valuable

Answer 8

in avoiding financial distress

Question 9

What is the Debt versus equity formula?

Answer 9

Shareholders’ equity= Assets- Liabilities

Question 10

The balance sheet value of the assets, liabilities, and equity is known as the

Answer 10

Book Value

Question 11

The true value; the price at which assets, liabilities, or equity can actually be bought or sold is known as

Answer 11

Market Value

Question 12

Which statement measures performance over a specified period of time like period, quarter, or year. The statement reports revenues first and then deducts any expenses for the period?

Answer 12

Income Statement

Question 13

What is the income statement equation?

Answer 13

Net Income= Revenue - expenses

Question 14

What is the end result of the income statement

Answer 14

Net Income or “Bottom Line”

Question 15

Which financial statement recognizes revenue when it is fully earned and match expenses required to generate revenue to the period of recognition?

Answer 15

GAAP Matching Principle

Question 16

Expenses charged against revenue that do not affect cash flow are known as

Answer 16

Noncash items

Question 17

What is the most important non cash item?

Answer 17

Depreciation

Question 18

slide 2-13?

Question 19

T/F-Publicly traded companies must file
regular reports with the Securities and
Exchange Commission

Answer 19

True

Question 20

Publicly traded companies must file regular reports with the Securities and
Exchange Commission these reports are then usually filed electronically and can be searched at the?

Answer 20

SEC public site called EDGAR

Question 21

What are the two types of tax rates we will be discussing in chapter 2?

Answer 21

Marginal
Average

Question 22

Which type of tax rate is a %tax paid on the next dollar earned?

Answer 22

Marginal

Question 23

Which type of tax rate are divided up by the total tax bill by taxable income

Answer 23

Average Tax Rates

Question 24

One of the most important
pieces of information that can be derived from financial statements is

Answer 24

Cash Flows

Question 25

T/F- the cash flows we are discussing finance does NOT provided the same information of the accounting statement of cash flows

Answer 25

True

Question 26

What is the focus of the Cash Flows in finance?

Answer 26

how cash is generated from utilizing assets and how it is paid to those who finance the asset purchase

Question 27

How cash is generated from utilizing assets and how it is paid to those who finance the asset purchase is the main focus of what term in finance?

Answer 27

Cash Flows

Question 28

What are the TWO formulas for the Cash Flow From Assets (CFFA) equation?

Answer 28

CFFA= Operating Cash Flow - Net Capital Spending - Changes in NWC CFFA = Cash flow to creditors(CF/Cr). + Cash Flow to Stockholders (CF/SH)

Question 29

How do you calculate the operating cash flow?

Answer 29

Earnings before interest and taxes + depreciation - taxes

Question 30

How do you calculate net capital spending?

Answer 30

Ending net fixed assets - beginning net fixed assets + depreciation

Question 31

How do you calculate change in net working capital?

Answer 31

(Total for current assets - current liabilities) for year 2 - (Total for current assets - current liabilities) for year 1

Question 32

How do you calculate cash flow to creditors (bondholders)

Answer 32

Interest paid- net new borrowing

Question 33

How do you calculate cash flow to stockholders (owners)

Answer 33

Dividends paid - net new equity raised