Ch.2 Quiz

Income Statement

- Bottom line of the income statement shows a firm's net income. - First line lists the revenues from the sales of products/services - It shows the flow of revenues and expenses generated by a firm between two dates. INCORRECT-The income statement shoes the cash flows and expenses at a given point in time.

Operating expenses on the income statement:

-General and Admin expenses and overhead -Depreciation and amortization -Salaries NOT-Corporate taxes

GAAP

-Generally Accepted Accounting Principles -was established by the Financial Accounting Standards Board (FASB) and is the format required by the SEC when companies submit their quarterly and annual reports.

What checks are there on the accuracy of these statements?

-Public companies mush use a common set of rules and standard format when preparing reports. -Corp. are required to hire an auditor to check the annual financial statements, which prepared according to GAAP.. -In addition to the auditor's role, the Sarbanes-Oxley Act requires both the CEO and CFO to personally attest to the accuracy of the financial statements presented to shareholders and to sign a statement to that effect.

Financial statements that must be produced by a public company:

-Statement of cash flows -Balance Sheet -Income Statement NOT - Statement of activities

Every public company is required to produce quarterly and annual financial statements:

-The statement of financial position. -The income statement. -The statement of cash flows. -The statement of stockholders' equity.

Firm's net income

-the difference between the sales and other income generated by a firm, and all costs, taxes, and expenses incurred by the firm in a given period -the last or "bottom" line of the income statement -a measure of the firm's profitability over a given period

A consensus estimate of future earnings by individuals that are not employees of the firm:

Analysts' estimates

Earnings are an important measure to financial managers because investors use earnings to make forecasts about a company's ____ and ultimately stock price.

Cash flows

The major components of stockholders' equity are:

Common stock, paid-in surplus, and retained earnings

A company's after-tax profits measured per unit of common stock:

Earnings per share

In the U.S., publicly traded companies can choose whether or not they wish to release periodic financial statements.

FALSE

The balance sheet shows the assets, liabilities, and stockholders' equity of a firm over a given length of time.

FALSE

Why a firm produces financial statement?

to provide a means for interested outside parties such as creditors to obtain information about a firm, with an overview of the short- and long- term financial condition.