Fin 311 Chapter 2
The cash flow identity reflects the fact that:
1) cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders. 2) cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm. 3) a firm generates cash through its various activities.
Assets can....
1) owns by firm 2) generate revenue 3) market value
Marginal Tax Rate (MTR)
Amount of tax payable on the next dollar earned.
Statement of Cash Flows
An official accounting statement that helps to explain the change in cash and cash equivalents
Noncash items
Expenses charged against revenues that do not directly affect cash flow, such as depreciation.
income statement
Financial statement summarizing a firm's performance over a period of time
Net Income
Revenues - Expenses. Money earned after interest and taxes
fixed assets
assets that are relatively permanent, such as land, buildings, and equipment
Cash flows can
be derived from financial statements.
operating cash flows
cash flow that results from the firm's day-to-day activities of producing and selling
Net Working Capital
current assets - current liabilities
matching principle
expenses shown on the income statement
balance sheet
financial statement showing a firm's accounting value on a particular date
current assets
has a life of less than one year. accounts receivable are also known as current assets
Current Liabilities
liabilities due within a short time, usually within a year. accounts payable are also known as current liabilities
liquidity
refers to the speed and ease with which an asset can be converted to cash.
financial leverage
the use of debt in a firm's capital structure. increases the potential reward to shareholders and also increases the potential for financial distress and business failure. Also greatly magnifies both gains and losses
True or false: Taxes can be a large cash outflow for a corporation.
true
true or false: financial statements are frequently a key source of information for financial decisions
true
another name for short-term financial management is .....
working capital
Average Tax Rate (ATR)
Total taxes paid divided by total taxable income.
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?
