Module 9

Question 1

4 financial statements

Answer 1

income statements
balance sheet
statement of retained earnings
statement of cash flows

Question 2

private companies

Answer 2

not required to release financial statements

Question 3

sports franchices

Answer 3

generally do not release financial statements

Question 4

public university athletic depts

Answer 4

must disclose financial statements

Question 5

why might pro sports financial statement not tell whole story?

Answer 5

move profits in pace w/ lower tax rate
reporting additional expenses can lower tax liability
obscure profit to generate support for public financing of arenas or lower salary demands of players

Question 6

how do pro sports do this on their financial statements?

Answer 6

transfer of profits within conglomerate
pay family members “salary” - reported as expense
RDA

Question 7

income statement

Answer 7

gives financial summary of firms operating results during specific period

Question 8

income

Answer 8

money/funds received

Question 9

net income

Answer 9

revenue - expenses = profit q

Question 10

balance sheets

Answer 10

firms financial position at given point

shows assets and liabilities

Question 11

assets

Answer 11

cash, securities, inventories, capital, etc.

Question 12

liabilities

Answer 12

accounts payable, debt, etc.

Question 13

assets =

Answer 13

liabilities + capital

Question 14

capital =

Answer 14

assets - liabilities (stockholder equity)

Question 15

fixed assets

Answer 15

least liquidity (long term)

Question 16

long term liabilities

Answer 16

obligations that will not be paid completely within 1 year

Question 17

current assets

Answer 17

expected to be converted to cash within 1 year or less

most liquid listed 1st

Question 18

current liabilities

Answer 18

obligations that must be paid in 1 year or less

Question 19

net working capital =

Answer 19

current assets - current liabilities

Question 20

statement of cash flows

Answer 20

summary of firms operating investment and financing cash flows
positive or neg

Question 21

statement of retained earnings

Answer 21

reconciles net income earned during given year and any cash dividends paid
shows change in retained earnings
important for stockholders

Question 22

operating cash flows

Answer 22

related to sale and production of goods and services

Question 23

investment cash flows

Answer 23

associated with fixed assets and business interests

Question 24

financing cash flows

Answer 24

from debt and equity financing

Question 25

firm borrows money

Answer 25

positive cash flow

Question 26

firm pays back debt

Answer 26

negative cash flow

Question 27

short term cash flows

Answer 27

needed to pay operating expenses | within 2 years

Question 28

long term cash flows

Answer 28

for strategic considerations and/or purchases | generally longer than 2 years

Question 29

cash forecast

Answer 29

predicts cash flow

Question 30

pro forma statements

Answer 30

predicted income statements or balance sheets

Question 31

cross sectional analysis

Answer 31

comparison of diff firms and ratios at certain point

Question 32

time series analysis

Answer 32

evaluate firms financial performance over time

Question 33

panel data

Answer 33

qualities of both cross sectional and time series analysis

Question 34

ratio analysis

Answer 34

involves method of calculation and interpreting financial ratios to analyze and monitor firms performance

Question 35

liquidity ratios

Answer 35

measure firms ability to meet short term financial obligations

Question 36

current ratio

Answer 36

total current assets / total current liabilities

Question 37

current ration < 1

Answer 37

firm likely not covering current expenses

Question 38

quick ratio

Answer 38

measures how much of firms assets tied up in inventory | (current assets - inventory) / current liabilities

Question 39

net working capital

Answer 39

current assets - current liabilities | amount of cash and liquid assets available to firm if they had to pay off all current liabilities in short period

Question 40

activity ratios

Answer 40

measure how effectively firm manages assets

Question 41

inventory turnover ratio

Answer 41

measures how many times during year inventory purchased and sold

Question 42

financial leverage ratios

Answer 42

give info on extent to which business relies on debt rather than equity

Question 43

debt-equity ratio

Answer 43

measures leverage but from standpoint of owner equity

Question 44

net profit

Answer 44

profit after paying taxes interest and overhead

Question 45

return on equity

Answer 45

measures profitability thru profits earned on investments thru stockholders assets only

Question 46

negative stockholder equity

Answer 46

when firms liabilities exceed assets

Question 47

market value

Answer 47

estimate of what firm would sell for in open marketplace | price per share * # of shares outstanding

Question 48

book value

Answer 48

based on cost of firms assets minus accumulated depreciation