FINANCE 301 - CH 2
Which is true of taxes?
They can be one of the largest cash outflows a firm experiences.
Under GAAP, U.S. firms must carry assets at:
book value
The statement of cash flow explains changes in _____.
cash and equivalents
Which one of the following is true?: Financial statements explicitly show cash flows. Earnings, net income, and cash flows are identical. Cash flows always exceed earnings. Cash flows can be derived from financial statements.
Cash flows can be derived from financial statements.
On which side of the balance sheet do liabilities appear?
Left side
A long-term liability represents a(n) _____.
a debt that is not due in the coming year
Liquidity refers to the ease of changing _____.
assets to cash
The total of cash flow to creditors and cash flow to stockholders is called _____
cash flow from assets
The more debt a firm has, the greater its:
degree of financial leverage
Cash flow to stockholders equals ____.
dividends paid minus net new equity raised
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
In the long run, all costs are _____.
variable
Another name for short-term financial management is ___ management.
working capital
The Tax Cuts and Jobs Act of 2017 set the corporate tax rate to be ______ regardless of the level of taxable income.
21%
The use of financial leverage can:
Increase the chance of financial distress and business failure; Greatly magnify both gains and losses; Increase the potential reward for investors.
Noncash items do not affect _____.
cash flow
A balance sheet reflects a firm's ______ value on a particular date.
accounting
The passage of the Tax Cuts and Jobs Act of 2017 was to make the federal corporate tax rate in the United States a _____ tax.
flat
Assets can be described as items that _____.
generate revenue; a firm owns; provide market value to the firm
Which one of the following represents what a firm owns at a given point in time?
its assets
Net working capital equals current assets ______ current liabilities.
minus
Noncash items are expenses that directly affect _____ but do not directly affect ______.
net income; cash flow
An official accounting statement that helps to explain the change in cash and cash equivalents is called the _____
statement of cash flows
Long-term liabilities are not due in the current year (from the date of the balance sheet).
true
Most importantly, assets provide ______ to the firm.
value
True or false: For financial analysis, financial statements and accounting numbers are more important than cash flows.
False
Which of these questions can be answered by reviewing a firm's balance sheet?: How much debt is used to finance the firm? How much of the firm's net income was paid out in dividends? How much net income has the firm earned this period? What is the total amount of assets the firm owns?
How much debt is used to finance the firm?; What is the total amount of assets the firm owns?
______ income is money earned after interest and taxes.
Net
The matching principle of GAAP requires revenues be matched with _____
expenses
The cash flow identity reflects the fact that:
cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders; cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm; a firm generates cash through its various activities.
