Chapter 2

for financial analysis, financial statements and accounting numbers are more important than cash flows

False

positive operating cash flow indicates that the firm is generating enough cash to

pay operating costs

net capital spending is equal to ending net fixed assets minus beginning net fixed assets

plus depreciation

Marginal tax rates are most important because

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

what should you keep in mind when examining an income statement?

-cash versus non-cash items -time and costs -GAAP

US tax code

35, 25, 34, 15

operating cash flow does not include depreciation or interest T/F?

True

in the long run, costs may be considered as

all variable

in finance, the value of a firm depends on its ability to generate

cash flow

non cash items do not affect

cash flow

Net capital spending is equal to the change in net fixed assets plus

depreciation

non cash items are expenses that

do not directly affect cash flow

when firm smooths earnings to please investors its called

earnings management

the purpose of an __ is to measure performance over a set period of time

income statement