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Corporate Financial Reporting > Session 3 > Flashcards

Session 3 Flashcards

1
Q

Which is the most (technically) basic of the the major financial statements?

A

Balance Sheet

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2
Q

The three categories for cash inflows and outflows

A

Operations
Investing
Financing

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3
Q

Net income is in which cash flow category?

A

Operations

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4
Q

Depreciation and amortization expense is in which cash flow category?

A

Operations

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5
Q

Gains are in which cash flow category?

A

Operations

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6
Q

Losses are in which cash flow category?

A

Operations

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7
Q

Change in current assets is in which cash flow category?

A

Operations

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8
Q

Change in liabilities is in which cash flow category?

A

Operations

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9
Q

Change in investment accounts is in which cash flow category?

A

Investing

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10
Q

Change in Long Term Assets is in which cash flow category?

A

Investing

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11
Q

Change in Long Term Liability Accounts is in which cash flow category?

A

Financing

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12
Q

Change in equity accounts (excluding net income) is in which cash flow category?

A

Financing

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13
Q

Dividend income is in which cash flow category?

A

Operations

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14
Q

Interest income is in which cash flow category?

A

Operations

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15
Q

Dividends paid is in which cash flow category?

A

Financing

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16
Q

Change in Short Term and Long Term Notes/Bonds payable is in which cash flow category?

A

Financing

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17
Q

Explain Operating activities

A

Transactions related to the day-to-day operations of the business

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18
Q

Explain Investing activities

A

Acquisitions and divestitures of investments (e.g. other firms’ securities) and long-term assets (e.g. PPE)

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19
Q

Explain Financing activities

A

Issuances and payments toward equity, borrowing, and long-term liabilities, and firm’s own dividends.

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20
Q

Buying Inventory cash flow category

A

Operating

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21
Q

Buying equipment cash flow category

A

Investing

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22
Q

Borrowing via accounts payable cash flow category

A

Operating

23
Q

Borrowing via long-term notes payable cash flow category

A

Financing

24
Q

Selling (issuing/treasury) your own stock cash flow category

A

Financing

25
Q

Selling stock of another firm (investment) cash flow category

A

Investing

26
Q

Buying your own stock cash flow category

A

Financing

27
Q

Buying stock of another corporation cash flow category

A

Investing

28
Q

Paying (your own) dividends cash flow category

A

Financing

29
Q

Receiving dividends from other corporations

A

Operating

30
Q

Loans to other entities (e.g. buying their bonds)

A

Investing

31
Q

How are dividends treated regarding the cash flow categories?

A

Dividends paid out to shareholders is a Financing activity while dividends received is an operating activity

32
Q

What does the indirect method to the Statement of Cash Flows always start with?

A

Net income

33
Q

Which method of the Statement of Cash Flows provides a lot more information?

A

Indirect Method (Schedule B)

34
Q

Which method of Statement of Cash Flows is rarely used?

A

Direct Method. Schedule A

35
Q

What two financial statements are needed to prepare the Statement of Cash Flows?

A

Income Statement and Balance Sheet

Net income is adjusted to yield cash flows from Operations, and balance sheet changes are reviewed to yield cash flows for both Investing and Financing activities.

36
Q

Explain how to prepare the Operations section of the Statement of Cash Flows

A

Begin with Net Income (from I/S)
+ Depreciation and Amortization Expense
+/- Cash generated (used) current assets and current liabilities
+/- Other noncash expenses/losses/gains
= Net cash flows from operating activities

37
Q

What is Amortization?

A

Depreciation for intangible assets like purchased patents or trademarks

38
Q

When an asset account increases, what is the adjustment to cash?

A

Cash decreases

39
Q

When an asset account decreases, what is the adjustment to cash?

A

Cash increases

40
Q

When a liability account increases, what is the adjustment to cash?

A

Cash increases

41
Q

When a liability account decreases, what is the adjustment to cash?

A

Cash decreases

42
Q

When an equity account increases, what is the adjustment to cash?

A

Cash increases

43
Q

when an equity account decreases, what is the adjustment to cash?

A

Cash decreases

44
Q

Free Cash Flow equation

A

Cash Flow from Operations (Operating Cash) (Cash Flow Statement)
- Capital Expenditure (Balance Sheet)

45
Q

Analysis of financial reports typically involves examining financial ratios and variables…

A

Over time (time-series)

Across firms (cross-sectional)

46
Q

What is a Common-Size Financial Statement?

A

A percentage statement usually stated in terms of total assets, or net sales, or revenues.

Generally helps promote comparisons with other companies

47
Q

Return on Assets equation

A

Net Profit Margin
X Total Asset Turnover

Or simplified:
Net Income / Average Total Assets

48
Q

Net Profit Margin equation and definition

A

Net Income / Sales

Measures the ability of the firm to control the level of expenses relative to sales.

49
Q

Total Assets Turnover ratio

A

Sales / Average Total Assets

Measures the ability of the firm to generate sales from a particular level of investment assets, or conversely, to control the amount of assets it uses to generate a particular level of sales.

50
Q

Accounts Receivable Turnover equation

A

Sales / Average A/R

Like to see this trend up.

51
Q

Inventory Turnover equation

A

Cost of Goods Sold / Average Inventory

Like to see this trend up.

52
Q

ART

A

Accounts Receivable Turnover

53
Q

Average A/R Received Days equation

A

365 / ART

54
Q

Average Days in Inventory equation

A

365 / Inventory Turnover

Corporate Financial Reporting (8 decks)

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