Week 2 - Financial Statements and Analysis

Question 1

Role of Financial Markets

Answer 1

• cash flows to and from the firm
• basically just trying to get investors

Question 2

Financial Markets

Answer 2

money markets
- short-term borrowing (under 1 year)
bond markets
- long-term borrowing (over 1 year)
stock markets
- long-term equity financing (common shares)

Question 3

Financial Institutions

Answer 3

• act as intermediaries between suppliers and users of funds
• insitutions earn income through interest and service

Question 4

Indirect finance

Answer 4

accesing money/capital from a financial intermediary

Question 5

Direct finance

Answer 5

raising money/capital directly from the Money or Capital Markets

Question 6

Primary market

Answer 6

• where a firm issues new bonds or shares to raise new funds

Question 7

Secondary Market

Answer 7

• where investors buy and sell (trade) outstanding bonds or shares

Question 8

Sources

Answer 8

cash inflow - occurs when we “sell” something
- decrease in non-cash asset account
- increase in liability or equity account

Question 9

Uses

Answer 9

• cash outflow (occurs when we buy something)
• increase in non-cash asset account
  decreae in liability or equity account

Question 11

What are standardized financial statements?

Answer 11

financial statements which express line items in relative terms rather than absolute terms

Question 12

Why do we use standardized financial statements?

Answer 12

• easier to compare financial info over time, particularly as the company grows