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13 Cards in this Set

  • Front
  • Back
Operating liabilities
results of credit granted to the company by suppliers. Also included, advances from customers. THey are consequences of operating decisions and arise in normal course of business
Financing liabilities
Include short term debt and current portion of long term liabilities. Result from fiancing decisions and indicate future need for cash or refinancing
Shift from operating to financing liabilities
A shift from operating to financing sources may indicate the beginning of a liquidity crisis, and the inability to repay short term credit is a sign of financial distress
Bonds are listed at what value?
Bonds are always listed as liabilities based on the proceeds received from the bonds which are the PV of all future payments
Bonds sold at premium (balance sheet)
Market rate > coupon rate Will always be shown on balance sheet as premium. Premium will be amortized to zero during life of bond
Bonds sold at discount (balance sheet)
Mkt rat < Coupon rate Will always be shown on balance sheet as discount. Discount will be amortized towards zero during life of the bond
Interest expense
Always equal to book value of bonds at beginning of period, multiplied by market rate
Cash flow impacts of issuing bonds
Coupon represents cash flow component as is deducted from CFO. For analytical purposes, int. exp. and amortization should be seperated and amortization should be included in CFF.
CF impact premium bonds
CFO understated, CFF overstated
CF impact discount bonds
CFO overstated, CFF understated becasue cash coupon is lower than interest expense
Issuance of Zero coupon debt
Same impacts as coupon debt, but more exaggerated. CFO will be severly overstated
Convertable bonds
reported as if no conversion feature. For analytical purposes, treat as equity if stock price is considerably above conversion price
Changes in interest rates
Result in changes of mkt value of debt but not reflected on financial statements. With variable rate debt, interest rate changes will change interest expense which will in turn, change NI.