FIN 3244 ch 2 vocab
Long term liabilities last over
1 year
Correct version of the BS equation
Assets=L +SE
questions that can be answered by reviewing a BS
How much debt is used to finance the firm What is the total amount of assets the firm owns
The use of financial leverage can
Magnify both gains and losses increase the chance of financial distress and business failure increase the optential reward for investors
Market Value
Value at which buyers and sellers would trade
Assets can be described as items that
a firm owns provide market value to the firm generate revenue
Long run
all costs are vairalbe
variable costs
change as the output of the firm changes
fixed costs are
costs that will not change due to fixed commitments over a stated period of time
The more debt a firm has the greater its
degree of financial leverage
marginal tax rates are important because
incremental cash flows are taxed at marginal tax rates financial decisions are based on new cash flows
current assets
inventory and accounts receviable
Current Assets
is equal to net working capital plus current liabilities
new cash flows are taxed at
marginal tax rates
Net income refers to
money earned after interest and taxes
residual value is the amount left over after paying
other debt holders bondholders accounts payable preferred stockholders
Period costs
selling costs general expenses administrative expenses
Liquidity
speed and ease with which assets can be converted to cas
the last (residual) claimants to be paid by a firm are the
stockholders
True about the U.S. modified tax-rate system
the tax rate becomes flat at very high income levels
how is the average income tax rate computed
total tax bill/ total taxable income
Non cash items do not affect
cash flow
The short run is
an imprecise period of time
assets on a balance sheet
are listed in order of decreasing liquidity
accounting profit
differs from cash flow
limitation of a balance sheet
does not show market vaules
Management
is responsible to create value for a firm
included in the fixed asset portion of a balance sheet
trademarks and accumulated depreciation
what does stockholders equity represent
a residual claim against the book value of the firm's assets
Depreciation
a systematic expensing of an asset based on the asset's estimated life