Ch. 2

These flashcards cover key concepts related to financial statements, taxes, and cash flow, based on Chapter 2 of the lecture notes.

Book Value

The balance sheet value of the assets, liabilities, and equity.

Market Value

The true value; the price at which the assets, liabilities, or equity can actually be bought or sold.

Net Working Capital

Current Assets minus Current Liabilities; usually positive for a healthy firm.

Liquidity

Speed and ease of conversion to cash without significant loss of value.

Debt versus Equity

Shareholders’ equity = Assets - Liabilities.

Income Statement

Measures performance over a specified period, reporting revenues and deducting expenses.

Net Income

The end result of the income statement; calculated as Revenue - Expenses.

Marginal Tax Rate

The percentage tax paid on the next dollar earned.

Average Tax Rate

Total tax bill divided by taxable income.

Cash Flow

A crucial piece of information derived from financial statements, indicating how cash is generated and paid out.

Operating Cash Flow (OCF)

Cash flow generated from normal operational activities.

Net Capital Spending (NCS)

Ending net fixed assets minus beginning net fixed assets plus depreciation.

Changes in Net Working Capital (ΔNWC)

Ending net working capital minus beginning net working capital.