FINA 3310 CH 2
Which one of these is considered to be the most liquid?
Accounts receivable
What does shareholders' equity represent?
A residual claim against the firm's total assets
shareholders equity
assets - liabilities
Non-cash items do not affect:
cash flow
operating cash flow
cash flow that results from the firm's day to day activities of producing and selling. does not include firms financing of its assets. this tells us if a firm's cash inflow is enough to cover its everyday cash outflows
free cash flow
cash that the firm is. free to distribute to creditors and stockholders because it is not needed for working capital or fixed assets
What should you keep in mind when examining an income statement?
cash versus non-cash items time and costs GAAP
cash flow
the difference between the number of dollars that came in and the number that went out
liquidity
the speed and ease. at which an asset can be converted into cash
Common stockholders are entitled to the difference between ______ and ________.
total assets; total liabilities
Financial leverage refers to a firm's _________.
use of debt in its capital structure
assets =
liabilities + shareholders equity
income statement equation
revenues - expenses = income
Rank the ease (from easiest to hardest) of turning the following assets into cash.
-cash equivalents -accounts receivable -inventory -plant and equipment
Which one of the following is true?
Cash flows can be derived from financial statements.
On which side of the balance sheet do liabilities appear?
The right side
Which of these questions can be answered by reviewing a firm's balance sheet?
What is the total amount of assets the firm owns? How much debt is used to finance the firm?
According to GAAP, when is revenue recognized on an income statement?
When the earnings process is virtually completed When the value of an exchange of goods or services is known or reliably determined
long term liability
a debt that is not due in the coming year. ex- loan company will payoff within the next 5 years.
market value
amount of cash we would get if we sold the asset.
The short run is ______.
an imprecise period of time
net working capital
current assets - current liabilities
assets
current or fixed.
assets are normally listed on the balance sheet in order of...
decreasing liquidity, so most liquid assets are listed first. ex- current assets, accounts receivable, and inventory
Which of the following is an example of a non-cash item on an income statement?
depreciation
networking capital
difference between a firm's current assets and its current liabilities. is positive when current assets exceed current liabilities
shareholders equity (common equity)
difference between the total value of the assets (current and fixed) and total value of liabilities (current and long term)
cash flow to stockholders
dividends paid - net new quity rasied
Depreciation is the accountant's estimate of the cost of ______ used in the production process matched with the benefits produced from owning it.
equipment fixed assets
marginal tax rate
extra tax you would pay if you earned one more dollar
balance sheet
financial statement showing a firm's accounting value on a. particular date
Costs that do not change in the short run arise because of ______.
fixed commitments
Operating cash flow (Select all that apply.)
tells us whether or not a firm's cash inflows from its operations are sufficient to cover its everyday cash outflows is a sign of trouble if negative over a long period of time
fixed assets
has a long life and is tangible ex-truck or computer. or is intangible, such as a trademark or patent
current asset
has like of less than one year. it is normally converted into cash within 12 months ex-inventory, accounts receivable
book value
instead of market value, book value (not what the assets are usually worth) is shown on the balance sheet.
cash flow to creditos
interest paid -net new borrowing
Period costs are the costs that are allocated to a specific ______.
interval of time
net income
last thing on the income statement. usually on a per-share basis called earnings per share
The price at which willing buyers and sellers would trade is called ______ value.
market
The ______ principle of GAAP states that costs associated with a good or service should be recorded at the same time as the revenue from selling that good or service.
matching
income statement
measures performance over some period of time, usually a quarter or a year
net capital spending
money spent on fixed assets - money received from the sale of fixed assets
Non-cash items are expenses that directly affect _____ but do not directly affect ______.
net income; cash flow
cash flow from assets
operating cash flow, capital spending, and change in networking capital.
recognition principle
recognize revenue when the earnings process is virtually complete and the value of an exchange of goods or services is known or can be reliably determined
Stockholders' equity is always shown on the ______ of the balance sheet.
right side
average tax rate
tax bill divided by your taxable income percentage of income that goes to pay your taxes
Could net capital spending be negative?
yes. bc what if that firm sold more assets than it purchased?