Financial Statements, Cash Flow, and Ratio Analysis Flashcards

Vocabulary practice flashcards covering key financial statements, cash flow formulas, financial ratios, the Altman Z-score model, and forecasting methods from FIN 310H.

Form 10-Q

Quarterly firm-issued accounting report that all public US companies must file with the SEC.

Form 10-K

Annual firm-issued accounting report that all public US companies must file with the SEC.

GAAP

Generally Accepted Accounting Principles used to prepare firm financial statements.

Balance Sheet

A snapshot of a firm's assets and liabilities at a given point in time, showing how it uses and raised capital.

Income Statement

A financial report showing the flow of revenues and expenses over a specific period of time.

Net Working Capital (NWC)

An important measure of liquidity calculated as $NWC = \text{Current Assets} - \text{Current Liabilities}$.

Liquidity

The ability to convert an asset to cash both quickly and without loss of value.

Matching Principle

A GAAP guideline to show revenue when it accrues and match the expenses required to generate that revenue.

Free Cash Flow (FCF)

The net cash flow generated by a firm, calculated as $FCF = OCF - CapEx - \Delta NWC$.

Operating Cash Flow (OCF)

Cash flow generated from firm operations, calculated as $OCF = EBIT \times (1 - t) + \text{Noncash Expenses}$.

Capital Expenditures (CapEx)

Investment in fixed assets, calculated as $CapEx = \text{Ending Net Fixed Assets} - \text{Beginning Net Fixed Assets}$.

Change in Net Working Capital (\Delta NWC)

The difference in short-term investments, calculated as $\Delta NWC = \text{Ending NWC} - \text{Beginning NWC}$.

Liquidity Ratios

Ratios examining current assets and current liabilities to help determine a firm's short-term situation.

Current Ratio

A primary liquidity ratio calculated as $\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$.

Quick Ratio

A liquidity ratio excluding inventory, calculated as $\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventories}}{\text{Current Liabilities}}$.

Leverage Ratios

Ratios examining how much borrowing (debt) the firm has on its balance sheet to determine long-term solvency.

Total Debt Ratio

A leverage ratio calculated as $\text{Total Debt Ratio} = \frac{\text{Total Debt}}{\text{Total Assets}}$.

Debt to Equity Ratio

A leverage ratio calculated as $\text{Debt to Equity Ratio} = \frac{\text{Total Debt}}{\text{Total Equity}}$.

Coverage Ratios

Ratios examining how much borrowing the firm has from the income statement perspective to determine annual interest coverage.

Times Interest Earned

A coverage ratio calculated as $\text{Times Interest Earned} = \frac{EBIT}{\text{Interest Expense}}$.

Cash Coverage

A coverage ratio incorporating depreciation, calculated as $\text{Cash Coverage} = \frac{EBIT + \text{Depreciation}}{\text{Interest Expense}}$.

Profitability Ratios

Ratios examining how much profit the firm is generating relative to sales, assets, or equity.

Profit Margin

A profitability ratio calculated as $\text{Profit Margin} = \frac{\text{Net Income}}{\text{Sales}}$.

Return on Assets (ROA)

A profitability ratio calculated as $\text{Return on Assets (ROA)} = \frac{\text{Net Income}}{\text{Total Assets}}$.

Return on Equity (ROE)

A profitability ratio calculated as $\text{Return on Equity (ROE)} = \frac{\text{Net Income}}{\text{Total Equity}}$.

Market Value Ratios

Ratios examining how the current stock price compares to another financial variable.

Price-to-Earnings Ratio (P/E Ratio)

A market value ratio calculated as $\text{P/E Ratio} = \frac{\text{Price per share}}{\text{Earnings per share}}$.

Altman Z-Score Model

A model using five ratios ($Z = 1.2 X_1 + 1.4 X_2 + 3.3 X_3 + 0.6 X_4 + X_5$) to predict the likelihood of bankruptcy.

Pro Forma Income Statement

A projected future income statement used in financial forecasting.

Percent of Sales Method

A forecasting approach that involves predicting next year's sales and using that value to determine other line items like COGS and SG&A.