MBA403 Week 1: Measuring Financial Performance

These flashcards cover the core terminology and concepts for measuring financial performance, including the primary types of financial statements and market valuation metrics.

Balance Sheet

Also known as the Statement of Financial Position, it provides a snapshot of a company’s financial position at a specific point in time by tabling Assets, Liabilities, and Equity.

Accounting Identity

The structural formula of a Balance Sheet where $\text{Assets} = \text{Liabilities} + \text{Equity}$.

Assets

The resources owned by a business to generate sales, such as cash, inventory, buildings, plant, and equipment.

Liabilities

The financial obligations of a business, including loans, creditors (suppliers), tax payable, and employee entitlements.

Equity

Also referred to as Net Assets or Capital, this includes the initial shareholder capital and retained earnings.

Current vs. Long-term Classification

The distinction made on a Balance Sheet between items expected to be realized or settled within $<12m$ (current) and those beyond $>12m$ (long-term).

Accrual Basis

The accounting method where items are recorded when they occur or are incurred, rather than when cash is exchanged.

Income Statement

Also known as a Profit and Loss Statement, it presents a company's profitability and operations results over a specific period of time.

Net Profit

Also known as Net Income or Earnings, this figure represents Revenues minus Expenses for a specific period.

Earnings Per Share (EPS)

A measurement used in valuing shares that public companies typically report on their Income Statement.

Cost of Goods Sold (COGS)

The direct costs attributed to the provision of a good or service, often separated from other expenses to show Gross Profit.

Cash Flow Statement

A statement reporting all cash inflows and outflows over a period, reconciling them with the opening and closing cash balances on the Balance Sheet.

Operating Cash Flows

Cash flows resulting from items included in the Income Statement, such as cash sales, wages, and interest paid.

Investing Cash Flows

Cash inflows and outflows related to the purchase or sale of investment items like property, equipment, and financial assets.

Financing Cash Flows

Transactions related to funding the business, including borrowing, principal repayments, issuing shares, and paying dividends.

Working Capital

A measure of a business's liquidity, calculated as $\text{Current Assets} - \text{Current Liabilities}$.

Book Value

The accounting view of a company's value, representing the Net Assets or Equity shareholders would receive if the company were liquidated.

Market Value

The value of a company as perceived by investors on a stock exchange, which can be higher or lower than the book value based on future prospects.

Market Capitalisation

A company’s total market value calculated by the formula $\text{Share Price} \times \text{No. of Shares On Issue}$.

ASX Reporting Season

The period, typically in August, when major Australian public companies publish their full-year results following the June financial year end.