what is the purpose of the income statement?
What does it indicate? - ✔✔to show stakeholders if the firm made or lost money during the period
being reported
it indicates how revenues are transformed into net income
d
...
what is the purpose of the income statement?
What does it indicate? - ✔✔to show stakeholders if the firm made or lost money during the period
being reported
it indicates how revenues are transformed into net income
define:
Revenue - ✔✔the amount charged for the delivery of goods and services
define:
COGS - ✔✔direct costs of producing revenue
define:
Operating Expense - ✔✔all other expenses required to run the business
what does Operating Income indicate?
-what is the other word for it? - ✔✔Op income indicates a company's earnings power from ongoing
operationsAnother work for Operating profit is EBIT
what does net profit indicate for the shareholder? - ✔✔indicates the increase in shareholder value
resulting from the operations of the firm
list the general flow of the income statement - ✔✔revenue
(COGS)
Gross Profit
(Operating expense)
Operating Income
(non Op Expense)
(Tax)
Net Income
what does the balance sheet show - ✔✔it is a financial statement that represents the financial position
of the company on a particular date
Balance sheet:
Assets are what the company _____, Liabilities are what the company _____, and equity is the ------ ------
- of shareholders against the company - ✔✔Assets are what the company owns, Liabilities are what the
company owes, and equity is the Remaining Claims of shareholders against the company
Define:
Debtwhich statement is it found on? - ✔✔the amount of obligations owed to creditors
It is found on the balance sheet
Define:
Equity
which statement is it found on? - ✔✔Equity is the cumulative shareholder investments + cumulative net
earnings
equity is found on the balance sheet
working capital:
- what does it measure?
- how is it calculated?
- what does a negative CHANGE in working capital indicate about cash for the company? - ✔✔Working
capital measures the efficiency and short term financial health
working capital=
(non-cash current assets)- (non debt current Liabilities)A negative change in working capital indicates that it is a SOURCE of cash. the firm grows on the limbs of
their suppliers, and this cash received is positive
is short term debt included when calculating the working capital for the firm? - ✔✔no, short term debt
isn't included because
working capital=
(non-cash current asset)- (NON-DEBT current liabilities)
which financing is cheaper for the firm and less risky for the investor:
Debt or Equity Financing
Explain why its less riskier? - ✔✔debt financing is cheaper and less risky
debt holders have a priority claims on the firm's assets if the firm goes bankrupt
while equity holder have no guarantee that they will get their investment back if the firm goes bankrupt
what statements will be use to derive the metrics to calculate the working capital for the firm? - ✔✔we
only need to use the balance sheet
remember:
WC= non cash current assets- non debt current liabsall of these values can be found on the balance sheet
net debt:
-what is it?
- what financial statements do we use to derive the metrics used to calculate it? - ✔✔net debt is a key
financial metric used to determine the resulting debt the firm would have, if the firm used all its cash on
hand to [ay down their debt
we only need the balance sheet since:
net debt = total debt-cash
**both can be found on the balance sheet **
Cash Flow Statement:
- what does it show?
- what does it reconcile? - ✔✔the cash flow statement shows how changes in the balance sheet
accounts and net income affect the cash balance of the firm
it reconciles net income to changes in cash
list the 3 types of activities on the cash flow statement - ✔✔1. cash from operations
2. cash from investing
3. cash from financing
[Show More]
