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19 Cards in this Set

  • Front
  • Back

Depreciation

A portion of the costs of fixed assets charged against annual revenues over time. Reduces the amount of taxes that a firm must pay. Depreciation deductions increase a firm's cash flow because they reduce a firm's tax bill.

Modified accelerated cost recovery system (MACRS)

System used to determine the depreciation of assets for tax purposes.

Depreciable life

The time period over which an asset is depreciated. The shorter the life, the larger the tax savings will be.

Operating flows

Cash flows directly related to sale and productions of the firm's products and services.

Investment flows

Cash flows associated with purchases and sale of both fixed assets and equity investments in other firms.

Financing flows

Cash flows that results from debt and equity financing transactions; include incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflow to repurchase stock to pay cash dividends.

Noncash charge

An expense that is deducted on the income statement but does not involve the actual outlay of cash during the period; includes depreciation, amortization, and depletion.

Operating cash flow (OCF)

The cash flow a firm generates from its normal operations; calculated as net operating profits after taxes (NOPAT). OCF = NOPAT + Depreciation

Net operating profit after taxes (NOPAT)

A firm's earnings before interest and after taxes. EBIT X (1- taxes). T = tax rates.

Free cash flow (FCF)

The amount of cash flow available to investors (creditors and owners) after the firm has met all operating needs and paid for investments in net fixed assets and net current assets. OCF - net fixed investment - net current asset investment.

Net fixed investment (NFAI)

Change in net fixed assets + depreciation

Long-term (strategic) financial plans

Plans that lay our a company's planned financial actions and the anticipated impact of those actions over periods ranging from 2 to 10 years.

Short-term (operating) financial plans

Specify short-term financial actions and the anticipated impact of those actions.

Cash budget (cash forecast)

A statement of the firm's planned inflows and outflows of cash that is used to estimate its short-term cash requirements.

Net current asset investment (NCAI)

Change in current assets - change in (accounts payable = accruals)

Pro forma statements

Projected, or forecast, income statements,and balance sheets. Requires 2 inputs (1) financial statements for the proceeding year and (2) sales forecast for the coming year

percent-of-sales method

A method for developing the pro forma income statement; it forecasts sales and then expresses the various income statement items as percentage of sales. Assumes that all costs are variable, which tends to overstate profits when sales are decreasing and understate profits when sales are increasing.

judgmental approach

A simplified approach for preparing the pro forma balance sheet under which the firm estimates the values of certain balance sheet accounts and uses its external financing as a balancing, or "plug" figure.

external financing required "plug" figure

Under the judgmental approach, the amount of external financing needed to bring the statement into balance. It can be either a negative or a positive value.