Week8

Question 1

how is the value of a firm calculated

Answer 1

the stream of cash flows a firm can generate in the future

Question 2

how do you estimate future cash flows and decide which actions to take to increase future cash flow

Answer 2

analyse financial statements

Question 3

what is an asset

Answer 3

resources owned by a business that are expected to produce future cash flows and give economic benefit

Question 4

what are the two kinds of assets and explain what distinguishes them

Answer 4

current and noncurrent(fixed) assets. current means can be converted to cash within 1 year. non current means cannot be converted to cash within 1 year

Question 5

what are the main types of current assets

Answer 5

Accounts receivables, inventory, cash

Question 6

what are the two main types of fixed/non current assets

Answer 6

tangible and intangible assets

Question 7

give some examples of tangible assets

Answer 7

land, buildings, equipment and machinery

Question 8

give some examples of intangible assets

Answer 8

goodwill, patents, trademarks/brand

Question 9

what are liabilities

Answer 9

debts owed by business

Question 10

what are the two types of liabilities

Answer 10

current, (those due within a year) and non current(can pay after one year)

Question 11

give some examples of current liabilites

Answer 11

accounts payable, notes payable, salaries payable, interest payable

Question 12

give some examples of long term liabilities

Answer 12

bonds payable, mortgage payable, long term notes

Question 13

what is owner’s equity and what do they include?

Answer 13

owners claim to the assets of the business. capital stock and retained earnings.

Question 14

what is revenue

Answer 14

total amt of money received by company for goods/services provided during a certain time period

Question 15

what is expenses

Answer 15

money spent to generate revenue. benefit of expense over 1 time period.

Question 16

what do financial statements meaasure

Answer 16

liquidity (ability of biz to generate cash), solvency (whether biz can pay back its debts). financialresults (for profitability isseus)

Question 17

what are the 3 financial statements and what do each measure

Answer 17

income statement (profit), balance sheet (equity), cash flow statement (cash)

Question 18

what does the income statement measure

Answer 18

profit. revenue - costs. financial performance over a period of time

Question 19

what does the balance sheet measure

Answer 19

equity. assets - liabilities. summarises financial performance at a specific point in time

Question 20

what does the cash flow statement measure

Answer 20

changes in cash over a period in time (1 year) cash inflow - cash outflow. cash received - cash paid. liquidity and solvency

Question 21

what is the diff between gross profit, ebit and net profit

Answer 21

gross profit = revenue - cost of goods sold
ebit = operating profit = gross profit - operating expenses
net income = ebit - interests and taxes

Question 22

what are the four expense categories

Answer 22

cost of goods sold
operating expenses
interest expenses
tax

Question 23

give some examples of COGs( Cost of revenue for service companies)

Answer 23

expenses directly related to making and storing goods. raw materials, labour costs, production costs

Question 24

is depreciation in COGs

Answer 24

YES

Question 25

give some examples of operating expenses

Answer 25

not directly incurred in production/storage. Sales, General, Administrative Expenses, R&D

Question 26

diff between opex and cogs

Answer 26

if expense can be eliminated without directly affecting the production and storage of a company's products, its an operating expense

Question 27

what is the accounting identity

Answer 27

assets = liabilities + owner's equity

Question 28

what is the formula for net working capital

Answer 28

nwc = inventories + accounts receivables - accounts payables

Question 29

what does net working capital mean and measure

Answer 29

how much cash is being tied up in items (i.e inventory), another way to see it is the net cash used in operating activities. indicator of company's operating efficiency and financial strength

Question 30

does lower working capital mean its better

Answer 30

yes, cos you have more cash flow not tied up in inventory and AR to finance other aspects of business. you have more FREE CASH FLOW. it also means shareholder profitability increases, and financing costs are also lower, more possibilities for acquisitions, and more business growth.

Question 31

what is the cheapest source of cash

Answer 31

when u reduce your net working capital