Financial acumen flashcards
(41 cards)
Accrual Basis Accounting
The standard financial reporting method for public companies. States that revenues are reported when earned, regardless of when the cash is received or paid out.
Amortization
Like depreciation, but for a non-tangible asset. An expense that is deducted periodically over the useful life of an intangible asset (EX: a patient)
Asset
Any resource used by the company in business operations. Tangible and intangible assets appear on the balance sheet.
Asset Utilization
How efficiently a company uses its assets to generate revenue, or save money. It is measured by the return on assets (ROA) ratio. Example: how will their capital investment in a Stryker product help them generate revenue/reduce costs?
Balance Sheet
Financial statement that lists assets, liabilities, and owner’s equity of business at a specific point in time. A snapshot at the health of the business.
Book Value
Value at which an asset is carried on by the company’s financial “books” and is shown on the valance sheet.
Bond
A form of long-term debt, where interest is paid periodically and the principal is repaid in 10 or more years.
Bottom Line
Informal reference to the net income or net earnings line found near the bottom of an income statement.
Cash Flow
Cash generated from operations (core business activates), minus the cash disbursed for expenses and other operational requirements. This is the “paycheck”, not the “bank account” (cash on hand).
Cash Position
Cash available at any given time - the amount and nature f the cash on the balance sheet. Can also include the ability of a company to borrow or raise cash rapidly.
COGS
Cost Of Goods Sold. All direct or variable costs associated with selling products and services.
Credit Rating
The published ranking of a corporation within a grading system (such as S&P, Moody’s, or Best’s), based on their ability to meet their financial obligations. Rating is based on a detailed analysis of the company’s financial history, condition, and future prospects. Generally, AAA is the highest and D is the lowest.
Depreciation
The incremental deduction as an expense of the Income Statement over multiple fiscal years of the original cost of certain categories of long-lived tangible assets.
EBIT
Earnings Before Interest and Taxes. All revenues - expenses, except for interest and taxes. It Excludes income from non- recurring activites or those not normal to daily operations.
FASB
Financial Accounting Standards Board. Establishes accounting principles and stands in the US. You may hear of FASB in current/future years due to FASB13. A recent guidance that changes where operating leases show up in financial statements.
Fiscal Year
The 12 month period selected by a company to report its financial statements and for tax purposes. Stryker’s fiscal year is calendar year.
Fixed Asset
Any long-term, tangible asset such as “property, Plant, and Equipment” as carried on the balance sheet. Not expected to be turned into cash in the next 12 months.
Free Cash Flow
Cash flow, minus capital expenditures.
Goodwill
The amount that the purchase price exceeds the value of its net tangible assets. Ex: Stryker buys a company for $10M more than it’s worth - the $10M would be classified by accounting as goodwill. Frequently, the price required to buy the total stock of an acquired company (which reflects earnings growth potential) is more than the total net assets of the organization - so, Stryker paid a premium for that company because of future potential.
Gross Margin
Sales minus direct cost (or COGS). Net margin takes it a step further and includes interest, depreciation, taxes, etc.
Indirect Cost
Same as overhead or G&A (general and administration) - all costs not directly associated with the production or sale of the product.
Liability
Any debt or other legal financial obligation that binds the company for payment. Includes accounts payable, mortgage, loans, bonds, issued, taxes, wages payable.
Liquidity
How easily and quickly a company could turn their assets into cash, if need be. A hospital = high fixed assets, illiquid. Amazon = high inventory turnover, less tangibles to their business - more liquid.
Margin
The difference between sales price and costs, expressed as a % of sales revenue. Ex: a product makes a 30% margin that goes back to Stryker to pay employees, fund new product development.
