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Flashcards in Chapter Two Deck (39):
1

What document is a "snapshot" of a business?

Balance Sheet

2

What is net working capital?

Current Assets-Current Liabilities

3

What is the difference between the total value of assets and the total value of liabilities?

Shareholders' equity

4

What is the speed and easy with which an asset can be coverted to cash?

liquidity

5

What are the two dimensions of liquidity?

Easy of conversion versus loss of value

6

What is the use of debt in a firm's capital structure?

Financial leverage

7

What are the common set of standards and procedures by which audited financial statements are prepared

Generally Accepted Accounting Principles

8

Financial managers are concerned with what type of valuation of assets?

Market value

9

What is the distinction between market value and book value important?

Book value often drastically understates the firms' assets

10

What is the formula that gives income?

Revenues-Expenses=Income

11

What is a financial statement summarizing a firm's performance over a period of time

Income statement

12

What are the items of an income statement (in order)

Net sales
Cost of Goods Sold
Depreciation
Earnings before interest and taxes
Interest expense
Taxable Income
Taxes
Net Profit
Dividends
Addition to Retained Earnings

13

How do we calculate earnings per share?

Net Income/Total shares outstanding

14

How do we calculate dividends per share?

Total Dividends/total shares outstanding

15

What are expenses charged against revenues that do not directly affect cash flow, such as depreciation

noncash items

16

What is earnings management?

Overstating or understating earnings at various times to smooth out dips and surges

17

What is the average tax rate?

Total taxes paid divided by total taxable income

18

Amount of tax payable of the next dollar earned

Marginal tax rate

19

What is meant by cash flow?

the difference between the number of dollars that came in and went out

20

Cash flow from assets =

Cash flor to creditors + Cash flow to stockholders

21

Cash flow from assets involve three componenets

operation cash flow, capital spending, change in net working capital

22

What is operating cash flow?

Cash generated from a firm's normal business activities

23

What is the operation cash flow formula?

EBIT+Depreciation-Taxes

24

What is net capital spending?

money spent of fixed assets less money received from the sale of fixed assets

25

What is the net capital spending formula

Ending net fixed assets-beginning net fixed assets+depreciation

26

What is the formula for the cash flow from assets?

Operating cash flow-Net capital spending-Change in NWC

27

What does a negative cash flow from assets mean?

the firm raised more money by borrowing and selling stock than they paid out to creditors and stockholders

28

What is cash flow to creditors?

A firm's interest payments to creditors less net new borrowings

29

What is the formula for cash flow to creditors?

Interest paid-net new borrowing

30

What is cash flow to stockholders

dividends paid ot by a firm less net new equity raised

31

What is the formula for cash flow to stockholders

dividends paid-net new equity raised

32

What are the two types of equity to be raised?

common stock and paid in surplus

33

What is the cash flow identity?


Cash flow from assets=cash flow to creditors+cash flow to stockholders

34

Cash flow from assets =

Operating Cash Flow - Net capital spending - change in NWC

35

Operating cash flow =

EBIT+Deprec-taxes

36

Net Capital spending =

Ending net fixed asset-beginning fixed net asset + depreciation

37

Change in NWC =

Ending NWC- Beginning NWC

38

Cash flow to creditors =

Interest paid - net new borrowing

39

Cash flow to stockholders =

Dividends paid - net new equity raised