Introduction to Financial Statements and Ratio Analysis

These flashcards cover key concepts related to financial statements and ratio analysis, helping to understand terminology and definitions relevant to the course.

Balance Sheet

Also called 'Statement of Financial Position', it lists a firm’s assets and liabilities, providing a snapshot of the firm’s financial position at a given point in time.

Income Statement

A financial statement that shows a company's revenues and expenses during a specific period, summarizing the firm's profitability.

Statement of Cash Flows

A financial report that reflects the amount of cash generated and used during a specific period, divided into operating, investing, and financing activities.

Market Capitalization

The total market value of a company's outstanding shares, calculated as the share price times the number of shares.

Return on Equity (ROE)

A measure of a corporation's profitability, calculated by dividing net income by shareholders' equity.

Liquidity Ratios

Financial metrics used to assess a company's ability to pay off its current obligations without raising external capital.

Current Ratio

A liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets.

Quick Ratio

A liquidity metric that measures a company's ability to meet its short-term obligations with its most liquid assets.

Debt-to-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Earnings Per Share (EPS)

A measure of a company's profitability per share, calculated by dividing net income by the number of outstanding shares.

Price-to-Earnings (P/E) Ratio

A valuation ratio calculated by dividing the market price per share by earnings per share.

DuPont Identity

A formula that breaks down ROE into three components: net profit margin, asset turnover, and equity multiplier.

Book Value of Equity

An accounting measure of a company's net worth, calculated as total assets minus total liabilities.

Cash Flow from Operations

Cash generated from normal operating activities of a business.

Working Capital

The difference between a company's current assets and current liabilities, indicating liquidity.

Gross Margin

The difference between sales revenue and the cost of goods sold, expressed as a percentage of sales.

Net Margin

The percentage of revenue remaining after all expenses have been deducted from sales.

Return on Invested Capital (ROIC)

A measure of the return earned on the capital invested in a business, calculated as NOPAT divided by invested capital.

Enterprise Value (EV)

A measure of a company's total value, often used as a comprehensive alternative to equity market capitalization.