Finance 303 - Chapter 2
Which of the following is the balance sheet equation?
Assets equal liabilities plus stockholders' equity.
True or false: With the passage of the Tax Cuts and Jobs Act of 2017, corporate tax rates went up.
False.
True or false: Current assets plus current liabilities equals net working capital.
False. Reason: CA minus CL equals NWC.
Which of the following is NOT a component of cash flow from assets?
Financing expenses
Which of the following are components of cash flow from assets?
Operating cash flow Capital spending Change in net working capital
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 income reported?
When it is earned or accrued
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
Balance sheet
a snapshot of a company's assets, liabilities, and owner's equity at a specific point in time
A balance sheet reflects a firm's:
accounting value on a specific date
Net earnings refers to income earned ______.
after interest and taxes
The short run is ______.
an imprecise period of time
current asset
asset that can or will be converted into cash within a year. ex: inventory or accounts receivable
Liquidity refers to the ease of changing _____.
assets to cash
A company's ______ tax rate is its tax bill divided by its total taxable income, and its ______ tax rate is the tax rate it pays on the next dollar of income.
average; marginal
The short run is a period when there are ______ costs.
both fixed and variable
Non-cash items do not affect:
cash flow
In finance, the value of a firm depends on its ability to generate ______.
cash flows
net working capital
current assets minus current liabilities
Physical assets are termed ______________ assets.
tangible
Assets can be categorized as (select all that are appropriate)
tangible and intangible assets current and fixed assets
The market value of an item is:
the cash value you'd get if you sold it
Cash flow refers to _____.
the difference between the number of dollars that came in and the number that went out
Financial leverage refers to a firm's _________.
use of debt in its capital structure
U.S. corporations pay tax at a rate of ____________ (Enter number only.)
21
fixed asset
Can be tangible or intangible. Ex, truck or a trademark
Which of the following is an example of a non-cash item on an income statement?
Depreciation
How is the average income tax rate computed?
Total tax bill/Total taxable income
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
When a firm smooths earnings to please investors, it is called ________.
earnings management
Cash flow to creditors equals:
interest paid minus net new borrowing
The price at which willing buyers and sellers would trade is called ______ value.
market
Current assets ____________ current liabilities equals NWC.
minus
The balance sheet identity shows that stockholders' equity equals assets ______ liabilities.
minus
The last item (or "bottom line") on the income statement is typically the _________.
net income
Earnings management is a controversial practice in which corporations ________ or ___________ their earnings to "smooth out" dips and surges and keep investors calm.
overstate; understate
Liquidity has two dimensions which are the ability to:
quickly convert assets into cash without significant loss in value