FIN 3244 ch 2 vocab

Long term liabilities last over

1 year

Correct version of the BS equation

Assets=L +SE

questions that can be answered by reviewing a BS

How much debt is used to finance the firm What is the total amount of assets the firm owns

The use of financial leverage can

Magnify both gains and losses increase the chance of financial distress and business failure increase the optential reward for investors

Market Value

Value at which buyers and sellers would trade

Assets can be described as items that

a firm owns provide market value to the firm generate revenue

Long run

all costs are vairalbe

variable costs

change as the output of the firm changes

fixed costs are

costs that will not change due to fixed commitments over a stated period of time

The more debt a firm has the greater its

degree of financial leverage

marginal tax rates are important because

incremental cash flows are taxed at marginal tax rates financial decisions are based on new cash flows

current assets

inventory and accounts receviable

Current Assets

is equal to net working capital plus current liabilities

new cash flows are taxed at

marginal tax rates

Net income refers to

money earned after interest and taxes

residual value is the amount left over after paying

other debt holders bondholders accounts payable preferred stockholders

Period costs

selling costs general expenses administrative expenses

Liquidity

speed and ease with which assets can be converted to cas

the last (residual) claimants to be paid by a firm are the

stockholders

True about the U.S. modified tax-rate system

the tax rate becomes flat at very high income levels

how is the average income tax rate computed

total tax bill/ total taxable income

Non cash items do not affect

cash flow

The short run is

an imprecise period of time

assets on a balance sheet

are listed in order of decreasing liquidity

accounting profit

differs from cash flow

limitation of a balance sheet

does not show market vaules

Management

is responsible to create value for a firm

included in the fixed asset portion of a balance sheet

trademarks and accumulated depreciation

what does stockholders equity represent

a residual claim against the book value of the firm's assets

Depreciation

a systematic expensing of an asset based on the asset's estimated life