BFIN322 Chapter 2
Free cash flow can also be called what?
total distributable cash flow
Define Average Taxes
total tax bill/taxable income
Market Value
true value; the price @ which the assets, liabilities or equity can be bought or sold
Earnings Management
when a firm smooths earning to please investors
Define Marginal Taxes
% of tax paid on the next dollar earned
Net earnings refers to income earned ________
After interested and taxes
Net Working Capital
Day-to-day activites, usually positive for a healthy firm
Why are Marginal tax rates important?
Financial decisions are usually based on new cash flows Incremental cash flows are taxed @ marginal rates
When examining an income statement you should keep in mind ....
GAAP Time & costs Cash vs Non-Cash Items
GAAP Matching Principle
Recognize revenue when it is fully earned, match expenses required to generate revenue to the period of recognition
Who do publicly traded companies file regular reports with?
Securities and Exchange Commission - usually filed electronically and searched via EDGAR
Book Value:
balance sheet value of assets, liabilities and equity
value of a firm depends on it's ability to generate what?
cash flows
Noncash Items
do not affect cash flow, depreciation is the most important.
Most important item that can be extracted from financial statements
firm's actual cash flows
What is the purpose of cash flows?
how cash is generated from utilizing assets and how it is paid to those who finance the asset purchase
What are the 2 ways accountants usually classify costs?
product and period
Liquidity
speed and ease of conversion t cash without significant loss of value
measured over a speficified period of time
the income statement is measured over____
Time & Costs are important when?
When examining an income statement
Depreciation
a systematic expensing of an asset based on the asset's estimated life