CF - Chapter 2

balance sheet

financial statement showing a firm’s accounting value on a particular date

assets

Fixed asset: relatively long life; can be tangible or intangible

Current asset: life of less than a year

assets = liabilities + equity

net working capital

current assets - current liabilities

liquidity

speed and ease with which an asset is converted to cash

financial leverage

use of debt in a firm’s capital structure

market value

the amount of cash we would get if we actually sold it

book value

values shown on the balance sheet for the firm’s assets and what they are actually worth

generally accepted accounting principles

The common set of standards and procedures by which audited financial statements are prepared.

income statement

financial statement summarizing a firm’s performance over a period of time

noncash items

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

cash flow from assets

The total of cash flow to creditors and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and change in net working capital.

operating cash flow

Cash generated from a firm’s normal business activities.

free cash flow

Cash that the firm is free to distribute to creditors and stockholders because it is not needed for working capital or fixed asset investments.

cash flow to creditors

A firm’s interest payments to creditors less net new borrowing.

cash flow to stockholders

Dividends paid out by a firm less net new equity raised.

net income

revenue - expenses

cash flow from assets (outside the firm)

cash flow to creditors + cash flow to stockholders

cash flow from assets (inside the firm)

OFC - NCS - change in NWC

cash flow to creditors

interest paid - net new borrowing (long term debt)

cash flow to stockholders

dividends paid - net new equity raised (common stock)

Operating cash flow

EBIT + Depreciation - Taxes

Net Capital Spending

Ending net fixed assets - beginning net fixed assets + Depreciation

Change in NWC

Ending NWC - Beginning NWC

marginal tax rate

percent tax paid on the next dollar earned

average tax rate

total taxes paid divided by taxable income

capital spending

net spending on fixed assets: purchases less sales of fixed assets

change in net working capital

the net change in current assets relative to current liabilities for the period