Topic 2 Flashcards Preview

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Flashcards in Topic 2 Deck (9)
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1
Q

GAAP

A

Generally Accepting Accounting Principals

2
Q

Matching principle

A

Report revenues & expenses at the same time

3
Q

Historical Cost principle

A

Items that appear on the financial statements are stated at their historical cost (book value)

4
Q

Advantages of standard forms

A

Facilitates Analysis
Clarifies communication
Enhance persuasion skills

5
Q

Balance Sheet

A

Snapshot in time

(Left Hand Side) (most liquid –> least liquid)
Cash
+Marketable securities
+A/R
+Inventories
————————————————
=Current assets
+Fixed Assets (PP&E)
-Accumulated Depreciation
————————————————
=Net Fixed Assets
+Current Assets
————————————————
=Total Assets

(Right Hand Side) (most liquid –> least liquid)

  Accounts payable
 \+Accruals
 \+Notes payable
------------------------------------------------
=Current Liabilities
\+Long-term Debt (Maturity > 1 year)
------------------------------------------------
=Total Liabilities
(Right Hand Side)
  Preferred Stock
 \+Retained Earnings
 \+Common Stock
 \+Additional Paid-in Capital
------------------------------------------------
=Total Equity
\+Liabilities
------------------------------------------------
=Total Liabilities & Equity
6
Q

Income Statement

A

Over a period of time (year)

Revenues (sales)
-CGS
————————————————
=Gross Profit
-Operating Expenses
————————————————
=EBITDA (Earnings beore interest, taxes, depreciation & amortization
-Depreciation
————————————————
=EBIT
-Interest Expense
————————————————
=EBT
-Tax Expense
————————————————
=Net Income (profit or earnings)

7
Q

Statement of Cash Flows

A

Most transparent financial statement

  CFO
\+CFI
\+CFF
------------------------------------------------
=Change in cash
\+Beginning cash
------------------------------------------------
=End cash
8
Q

*Review CFO CFI & CFF Equations & Info

A

yah

9
Q

Why do ratio analysis?

A

Standardize Financial Data
Flexibility
Lead us to look in the right places
Evaluate whether the firm is maximizing shareholder wealth