Financial Statements

Balance Sheet

A financial statement that shows a firm's assets and liabilities at a particular time, reflecting what the firm owns and owes.

Accounting Identity

Assets = Liabilities + Owners’ Equity, representing the fundamental equation of the balance sheet.

Current Assets

Assets that can be converted into cash easily, including cash, securities, receivables, and inventories.

Fixed Assets

Tangible assets such as property, plant, and equipment, and intangible assets like trademarks and patented technology.

Current Liabilities

Obligations that are due within 12 months, including accounts payable and short-term debt.

Long-term Liabilities

Obligations that are due in more than 12 months, which may include long-term debt.

Shareholders’ Equity

The residual interest in the assets of the firm after deducting liabilities, representing shareholders' investment.

Net Working Capital

Current Assets - Current Liabilities, measuring the liquidity of a firm.

Income Statement

A financial statement that summarizes a firm's revenues and expenses over a specific period, typically a quarter or a year.

Net Income

The profit of a firm calculated as revenues minus total expenses; also referred to as net profit.

Operating Profit (EBIT)

Earnings before interest and taxes, calculated as revenues minus operating expenses.

Retained Earnings

Accumulated net profits that are retained in the firm instead of being paid out as dividends.

Statement of Cash Flows

A financial statement documenting the firm’s cash receipts and payments over a specified period.

Free Cash Flow

Cash available for distribution to investors after the firm has paid for new investments or additions to working capital.

Cash Flow Equation

Cash flow from operations + Cash flow from investments + Cash flow from financing = Change in cash balance.