Chapter 2 Finance
net operating working capital
(Cash + accounts receivable + inventories) - (accounts payable + accrued expenses)
net cash flow
= net income + depreciation and amortization charges
net operating working capital
Current Assets minus non-interest-bearing current liabilities.
Kaylor Equipment Rental paid $75 in dividends and $511 in interest expense. The addition to retained earnings is $418 and net new equity is $500. The tax rate is 35%. Sales are $15,900 and depreciation is $680. What are the earnings before interest and taxes?
Net income = $75 + $418 + = $493 Taxable income = $493/(1-.35) = $758.46 Earnings before interest and taxes = $758.46 + $511 = $1,269.46
marginal tax rate
The percentage of the next dollar you earn that must be paid in taxes
Non cash items
expenses charged against revenues that do not directly affect cash flow
Debt is a contractual obligation that
requires a repayment of a stated amount and interest over the period. allows the bondholders to sue the firm if it defaults.
Balance sheet
the financial statement that shows the accounting value of a firm's equity as of a particular date