FINC300 Module 3

Current assets/Accounts receivable inventory

Can be turned into cash within a year

Fixed assets/long-term assets

Assets that you will use over the course of many years

Plants

Land plants

Equipment

Things that help you produce a product. i.e robotics

Total current

Amount of money owed within a year

Long-term debt

Amount of money owed over course of many years

Accounts payable

A company’s obligation to pay back for goods and services received on credit

Common stock

Money that the shareholders invest while buying the stock

Retained earnings

Profits that are generated over time in the company

Total assets

Always equals total liabilities plus total equity

Net working capital

The difference between a firm’s current assets and its current liabilities

Income statement

Measures revenue and expenses

Net sales

Sales minus discounts

Cost of goods sold

Costs that are rekated to the product itself

Depreciation

Gradual decrease of a fixed asset over time

For example: A machine bought now won’t have the same worth in one decase. That loss in value would be read as ______, recorded as an expense

Shares outstanding

When a company first goes public and also issues stock afterwards

Earnings per share

Net income divided by shares outstanding

Dividends per share

What is paid out to shareholders

Dividends divided by shares outstanding

Cash flow from assets

Generates sales and profits

Operating Cash Flow (OCF)

Based on the day-to-day operations of the company

Capital Expeniture Spending (CapEx)

The company purchasing- and sometimes selling- property, plant, and equipment

Cash source

Where capital will come from

Cash use

How capital will be used

Liquidity

The speed and ease with which an asset can be converted to cash

Book values

Values on balance sheet for a firm’s assets- generally are not what the assets are actually worth

Market values

Values of an asset depending on things like riskiness or cash flows, neither of which having to do with accounting

Income statement

A financial statement summarizing a firm’s performance over a period of time, usually a quarter of a year

Revenues - Expenses

GAAP

Generally accepted accounting principles

Noncash items

Expenses charged against revenues that do not directly affect cash flow, such as depreciation

Average tax rate

Calculated as total taxes paid divided by total taxable income

Marginal tax rate

Amount of tax payable on the next dollar earned

Cash flow

The difference between the number of dollars that came in and the number of dollars that went out

Cash flow identity

Cash flow from the firm’s assets is equal to the cash flow paid to suppliers of capital to the firm

Cash flow from assets

1. Operating cash flow

2. Capital spending

3. Changes in net working capital

Average Tax Rate vs Marginal Tax Rate

Calculated as total taxes paid divided by total taxable income

vs

Amount of tax payable on the next dollar earned

EBIT

Earning before interest and taxes

Operating cash flow

The cash flow that results from the firm’s day-to-day activities of producing and selling

Capital spending

The net spending on fixed assets, which is purchases of fixed assets minus sales of fixed assets

Liquidity Ratios

Measures how much available cash and items that you can turn into cash in the short term

i.e, if you have an upcoming bill to pay, you can check to see if you have enough assets to pay those bills

Long-term Solvency Ratios

Measures whether you have enough assets, equity, profits, etc. in the company to pay off your debt

Insolvent

Bankrupt

Asset Management Ratios

Measures how a company is using its assets

Profitability Ratios

Measures whether or not- or how profitable- your company is

Straightforward if you know the income statement

DuPont Idenity

Splits Return on Equity (ROE) into three parts:

1. Operating Efficiency

2. Assest Use Efficiency

3. Financial Leverage