Financial Statement Analysis Flashcards
Define financial statements
Firm-issued accounting reports with past performance information.
Explain what a 10-Q and a 10-K?
Form 10-Q is a quarterly report for finances and 10-K is an annual report
What firms have to release their financial statements and to who?
Public firms must file their financial statements with the relevant regulatory body, public firms don’t. Annual reports must be sent to shareholders too
Why does a firm hire an auditor
To ensure the accuracy of their financial statements
What statements does an annual report consist of?
Statement of financial position
Income statement
Statement of cashflow
Define a statement of financial position
Balance sheet - shows firms accounting value on a particular date - snapshot
Balance sheet equation
Assets= Liabilities + Shareholders Equity
What does residual claim mean
Shareholders get any value thats left of assets after creditors and liabilities have been paid. Last claim.
Define a current asset
Cash or things owned expected to be turned into cash in next year ex: marketable securities, accounts/trade receivables (debtors), inventory or pre paid expenses
Define a non current asset and describe the types
Have a longer life of over 1 year - can be tangible or intangible. can also have financial assets too
Define a current liability
Current liabilities are things company owes to be paid within a year ex: accounts/trades payables, short-term debt, maturities, accrual items
Define a non current liabilities
Things a company owes long term ex: capital leases, deffered taxes, long-term debt
Define market value
Value based on prices or market variations. Financial managers care about this value
Define book value
In accounts this value is used, It can be defined using the historical cost model or revaluation model. Historical - being based on price originally paid for the business. Revaluation is the fair value amount, what it would cost today
Define IAS
International Accounting Standards are set of standards and procedures by which audited financial statements are prepared in Europe and other countries
What is the formula for net income
Revenues - Expenses = Income
What does IAS say about revenues and expenses on the income statement
Recognition or realisation principle for revenues - they are recognised at the time of sale
Expenses are done on the matching principle - corresponding expenses to incomes recorded are shown
What are non cash items
Expenses charged against revenue not directly affecting cash flow. Income differs from cashflow and we see that here ex: Depreciation
What is the cashflow statement formula
Cash flow from assets = cash flow to creditors and equity investors
What are the two methods of doing a cash flow statement and explain them
Direct method - actual cash outflows and inflows are presented
Indirect method - Company profit or loss and extracting non-cash items which incurred . Both arrive at the same operating cashflow
What is total cash flow made up of
Operating activities, investing activites, financing activities
What is one of the largest cash outflows
corporate taxes
What is average tax rate
% of income that pays taxes
tax bill/taxable income
What is marginal tax rate
Tax you would pay if you earned one more unit of currency
