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10 Cards in this Set
- Front
- Back
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GOAL OF A FIRM:
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**to maximize value**
-link from firms to woners -all encompassing -value is determined otuside the firm -forward looking |
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KEY CONCEPTS IN FINANCE
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1)Risk and return – more risk=more return
2)Income vs. Cash Flow—Income is easiest to find, CF is more important 3)Market value vs. book value—market value= current $, what people pay, selling price. Book value is hard to find. Book value=values that are reported on the balance sheet. Book value does not =market value! MV is more important 4)Money today vs. Money tomorrow—idea of time value of money, interest, money in different time periods is not comparable. 5)Value of an asset-present value of expected future, cash flow. 6)Asset=Debt & Equity 7)Goal of firm-maximize value. Market determines the value (customers, competition, etc) |
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ANNUAL REPORT
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most important
2 sections: one describes operations over the past year and developments that will affect future operations, second presents 4 financial statements: balance sheet, income statement, statement of cash flows, and statement of retained earnings give an accounting picture of the firm's operations and financial position |
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BALANCE SHEET
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at a specific point in time
shows firms assets and how they are financed (debts/equity) BOOK VALUE OF EQUITY- not market value |
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working capital =
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current assets
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liquidity
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ease of conversion to cash
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INCOME STATEMENT
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over a period of time
Revenue (Sales) (-)COGS (-)Operating expenses (-)Depreciation (-)EBIT (earnings before interest and taxes) (-) Interest expense (-) EBT (-)Tax% = Net Income (NI) |
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CASH FLOW STATEMENT
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cash flow from operating, investing, and financing activities
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operating activities
investing activities financing activities |
running business
fixed assets buying/selling stock, borrowing/repaying debt |
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FREE CASH FLOW
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cash flow that is available to shareholders and creditors after running business and reinvesting in business
the businesses's worth |
