Term
| What are the three business activities shown on the statement of cash flows? |
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Definition
| Cash flows from operating activities, cash flows from investing activities and cash flows from financing activities. |
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Term
| What does the operating activities section of the statement of cash flows reconcile? |
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Definition
| The difference between net income and operating cash flow. |
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Term
| How is an increase in receivables shown on the statement of cash flows? |
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Definition
| The increase is deducted from net income. |
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Term
| How is an decrease in receivables shown on the statement of cash flows? |
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Definition
| The decrease is added to net income. |
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Term
| How is an decrease in inventory shown on the statement of cash flows? |
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Definition
| The decrease is added to the net income. |
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Term
| How is an increase in inventory shown on the statement of cash flows? |
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Definition
| Deduct the increase from net income. |
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Term
| How is an increase in payables shown on the statement of cash flows? |
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Definition
| Add increase to net income |
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Term
| How is an decrease in payables shown on the statement of cash flows? |
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Definition
| Deduct decrease from net income. |
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Term
| Is an increase in an asset a cash inflow or outflow? |
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Definition
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Term
| Is an increase in equity or liabilities a cash inflow or outflow? |
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Definition
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Term
| Which if the three financial statements we've studied does "cash and cash equivalents" show up on? |
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Definition
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Term
| Once you've calculated the net cash used in the three activities reported on the statement of cash flows, how do you calculate the cash and cash equivalents at the end of that reporting period? |
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Definition
| Take net increase/descrease from business activities and add it to the cash and cash equivalents at the beginning of the reporting period. |
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Term
| What is another term for net income? |
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Definition
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Term
| Which of the three business activities reported on the statement of cash flows is the sale of PPE reported on? |
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Definition
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Term
| Which of the three business activities reported on the statement of cash flows does lawsuit settlements show up on? |
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Definition
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Term
| What are the two statement of cash flows formats and which is the most popular and why? |
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Definition
| Direct and Indirect methods. Indirect method is most popular because if direct method is used a supplemental report is required showing the indirect method (thus requiring both). |
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Term
| What are the steps to comput net cash flow from operating activities? |
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Definition
1) Start with net income
2a) Adjust for noncash revenues and expenses (e.g. depreciation)
2b) Adjust for gains/losses on sale of assets (e.g. PPE)
3) Adjust net income for changes in current assets and liabilities.
4) Sum amounts from 1-3 to get net cash flows form operating activities. |
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Term
| What impact on the statement of cash flows does the increase of prepayment of insurance have? |
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Definition
| Deduct the increase from net income. |
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Term
| Sale of PPE (e.g. land) impacts two business activities on the statement of cash flows. Which two? |
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Definition
1) Investing (the sale amount)
2) Operating section (amount of gain/loss adjusted) |
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Term
| What are the three disclosures required by the indirect method for the statement of cash flows? |
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Definition
1) Cash paid for interest, Cash paid for taxex
2) Schedule or description of all non-cash investing and financing transactions (e.g. issuance of common stock to buy patent)
3) Firm's policy for defining "cash equivalents" |
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Term
| Does increases in net income correspond to a positive cash flow? |
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Definition
| No, hence the need for statement of cash flows. |
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Term
| Which of the three business activities reported in the statement of cash flows does dividends received (from another company) show up on? |
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Definition
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Term
| Which of the three business activities reported in the statement of cash flows does dividends paid show up on? |
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Definition
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Term
| What is another name for the indirect method for statement of cash flows? |
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Definition
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Term
| Which of the three SCF business activities does interest paid by a firm show up in? |
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Definition
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Term
| Give examples of intangible assets |
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Definition
| Copyright, patent, trademark, goodwill |
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Term
| What is the term for depreciation expense tied to intangible assets? |
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Definition
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Term
| What is a common-size statement |
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Definition
| A percentage statement usually stated in terms of total assets or net sales or revenues used in comparing companies. |
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Term
| What is the formula for Disaggregating Return on Assets (aka ROA) |
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Definition
ROA = Net Profit Margin x Total Asset Turnover or:
net income / avg total assets
or:
net income/sales (net profit margin) x sales/avg total assets (asset turnover) |
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Term
| What are the two turnover ratios we have to know? |
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Definition
1) Accounts Receivable Turnover
2) Inventory turnover |
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Term
| How do you calculate accounts receivable turnover? |
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Definition
| sales / avg accounts receivable |
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Term
| How do you calculate inventory turnover |
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Definition
| Cost of Goods Sold / Avg Inventory |
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Term
| Does a high inventory turnover indicate that a firm is able to sell its inventory more quickly? |
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Definition
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Term
| What measures the ability of a firm to control expenses relative to sales? |
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Definition
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Term
| What measures the ability of a firm to generate sales from a given level of investment in assets? |
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Definition
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Term
| How do you calculate net profit margin? |
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Definition
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Term
| How do you calculate total asset turnover? |
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Definition
| Sales / Avg. Total Assets |
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Term
| Does a firm recognize profit as its stock price goes up (or falls) |
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Definition
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Term
| Can a firm recognize profit on the sale of its own stock? Why or why not? |
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Definition
| No, changes are simply reflected in contributed capital. |
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Term
| How do you compute the change in cash for a company? |
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Definition
| Sum up the net cash flow from operating, financing and investing activities |
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Term
| What's the effect on the statement of cash flows when a company acquires a factory site by sale of it's own stock? |
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Definition
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Term
| How do you calculate free cash flow (FCF)? |
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Definition
| Cash flow from operations - capital expenditures (CAPEX) |
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Term
| Is ROA part of profitability or turnover analysis |
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Definition
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Term
| How do yo calculate the price-to-earning ratio? |
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Definition
| Market value per share / Earnings per share (EPS) |
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Term
| Which ratio might tell investors what to expect with respect to earnings growth |
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Definition
| Price-to-Earnings (PE) Ratio |
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