Finance Chapter 2
cash flows from investing activities
Cash flows associated with the purchase or sale of fixed or other long-term assets
preferred stock
a hybrid security that has characteristics of both long-term debt and common stock
market value
assets are listed at the amount the firm would get if it sold them
book (or historical cost) value
assets are listed on the balance sheet at the amount the firm paid for them
current assets
assets that will normally convert to cash within one year
fixed assets
assets with a useful life exceeding one year;physical (tangible) assets such as plant and equipment, and less tangible assets like patents and trademarks
cash flows from operations
cash flows that are the direct result of the production and sale of the firm's products
cash flows from financing activities
cash flows that result from debt and equity financing transactions
DPS
Dividends per share
EBT
Earnings before Taxes
EBIT
Earnings before interest and taxes
EPS
Earnings per share
Statement of retained earnings
Financial statement that reconciles net income earned during a given period and any cash dividends paid with the change in retained earnings over the period
Income statement
Financial statement that reports the total revenues and expenses over a specific period of time
NOPAT
Net operating profit after taxes; net profit a firm earns after taxes but before any financing costs
current liabilities
Obligations of the firm that are due within one year; including accrued wages and taxes, accounts payable, and notes payable
OCF
Operating Cash Flow
long-term debt
obligations of the firm that are due in more than one year; another type of liability;includes long term lans and bonds with maturities of more than one year
EBITDA
earnings before interest, taxes, depreciation, and amortization
statement of cash flows
financial statement that shows the firm's cash flows over a period of time
liabilities
funds provided by lenders to the firm
stockholders' equity
funds provided by the firm's preferred and common stock owners;difference between total assets and total liabilities of a firm
Gross Profit
net sales minus cost of goods sold
BVPS
Book value per share
MVPS
Market value per share
MACRS
Modified Accelerated Cost Recovery System; one of the accounting methods to choose to record depreciation against fixed assets; the other is the straight line method
positive cash flow from operations
managers and investors look for positive cash flows from operations as a sign of a successful firm-positive cash flows from the firm's operations is precisely what gives the firm value
Financial Statement
Statement that provides an accounting-based picture of a firm's financial position.
Balance Sheet
The financial statement that reports a firm's assets, liabilities, and equity at a particular point in time
What does a negative free cash flow value mean?
The firm's operations produce no cash flows available for investors
amortization
is the paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan.
What does a positive free cash flow value mean?
it means that the firm may distribute funds to its investors (debt holders and stockholders).
Marketable securities
short-term, low-rate investment securities held by the firm for liquidity purposes
marginal tax rate
the amount of additional taxes a firm must pay out for every additional dollar of taxable income it earns
capital structure
the amount of debt versus equity financing held on the balance sheet
Net Income
the bottom line on the income statement
Free Cash flows
the cash that is actually available for distribution to the investors in the firm after the investments that are necessary to sustain the firm's ongoing operations are made
depreciation
the charge against income that reflects the estimated dollar cost of the firm's fixed assets
Retained Earnings
the cumulative earnings the firm has reinvested rather than pay out as dividends
Net working capital
the difference between a firm's current assets and current and current liabilities
Liquidity
the ease of conversion of an asset into cash at a fair value
financial leverage
the extent to which debt securities are sued by a firm
common stock and paid-in surplus
the fundamental ownership claim in a public or private company
Average Tax Rate
the percentage of each dollar of taxable income that the firm pays of taxes
Earnings Management
the process of controlling a firm's earnings
Net change in cash and marketable securities
the sum of the cash flows from operations, investing activities, and financing activities