Chapter 3 Flashcards
(46 cards)
What is the definition of an Annual Report?
A report issued annually by a corporation to its stockholders, containing basic financial statements and management’s analysis of past operations and future prospects.
What are the main components of a Balance Sheet?
- Assets
- Liabilities
- Equity
What is the purpose of an Income Statement?
Summarizes a firm’s revenues & expenses over a given period of time, reflecting performance during that period.
How often is an Income Statement usually prepared?
Monthly, quarterly, and annually.
What does the Statement of Retained Earnings show?
Shows how much of the firm’s earnings were retained, rather than paid out as dividends.
What is indicated by a positive balance in the Statement of Retained Earnings?
Indicates past income, not necessarily current cash.
What is the purpose of a Statement of Cash Flows?
Reports the impact of a firm’s activities on cash flows over a given period of time.
What does the Statement of Cash Flows help determine?
If the firm generates enough cash for growth, debt repayment, or new investments.
What are the general sources of cash?
- Net income + depreciation
- Decrease in long-term debt
- Increase in long-term debt
- Increase in equity
- Increases in current liabilities
- Decreases in fixed assets
- Decreases in current assets (other than cash)
What are the general uses of cash?
- Dividend payments
- Decrease in equity
- Increases in fixed assets
- Increases in current assets (other than cash)
What activities fall under Operating Activities in the Statement of Cash Flows?
- Net income
- Depreciation
- Amortization
- Depletion
- Changes in current assets and liabilities (other than cash, short-term investments, and short-term debt)
What activities are included in Investing Activities?
- Investments in fixed assets
- Sales of fixed assets
What are financing activities in the Statement of Cash Flows?
- Raising cash by selling short-term investments
- Issuing short-term debt or long-term debt
- Issuing shares (stock)
- Dividends paid
- Cash used to buy back outstanding stock or bonds
What are Operating Current Assets?
Current assets used to support operations, excluding short-term investments.
What are Long-Term Operating Assets?
Assets such as Plant and Equipment (P.P.E), excluding long-term investments that pay interest or dividends.
What defines Operating Current Liabilities?
Current liabilities that occur as a natural consequence of operations, such as accounts payable and accruals.
What is Net Operating Working Capital (NOWC)?
The difference between operating current assets and operating current liabilities.
What is the formula for NOWC?
NOWC = (Cash + Accounts Receivable + Inventories) - (Accounts Payables + Accruals)
What does Operating Capital represent?
The total amount of capital needed to run the business.
What is the formula for Operating Capital?
Operating Capital = NOWC + Net Fixed Assets
What is Net Operating Profit After Taxes (NOPAT)?
The after-tax profit a company would have if it had no debt and no investments in non-operating assets.
What is the formula for NOPAT?
NOPAT = EBIT × (1 – Tax Rate)
What does Net Cash Flow (NCF) represent?
The total cash flow generated by the company.
What is the formula for Net Cash Flow?
NCF = Net Income + Depreciation
