Financial Information and Valuation Exam 1 Questions and Answers

Financial Information and Valuation Exam 1 Questions and Answers Accounts Payable amounts owed to suppliers for goods and services purchased on credit Unearned Revenue Cash received from a customer in advance for goods or services Current Maturities of Long Term Debt Principal portion of long-term debt that is due to be paid within one year Inventory Goods purchased or produced for sale to customers Prepaid expenses costs paid in advance for rent, insurance, or other services Intangible and other Assets Assets without physical substance, including patents, trademarks, franchise rights, goodwill and other costs the company incurred that provide future benefits. Goodwill The portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process Net Working Capital current assets - current liabilities Long Term Debt Principal loan amounts that are scheduled to be repaid more than one year late. Includes bonds, notes, debentures, mortgages, and other long-term loans Common Stock Pay value received from the original sale of common stock to investors Additional Paid-in Capital amounts received from the original sale of stock to investors in excess of the par value of stock Preferred Stock Value received from the original sale of preferred stock to investors Treasury Stock amount the company paid to reacquire its common stock from shareholders Treasury shares are "held" by the company for potential resale on the open market Retained Earnings Cumulative net income that has not been distributed to stockholders via dividends or share repurchasesf Book Value Value of the company per GAAP Market Value Number of common shares outstanding x company's stock price Difference between Book and Market Value - GAAP reports assets and liabilities based on historical costs - GAAP excludes assets that cannot be reliably measured - Market Value adjusts for companies' market characteristics - GAAP does not consider expected future performance Operating Expenses Usual and customary costs a company incurs to support its operating activities Non-Operating Expenses Relate to the company's financing and investing activities (AKA: Other Income/Expenses) Gross Profit Margin (Gross Profit/Sales) - Influenced by both the selling price of the company's products and the cost to make or buy those products - High and increasing is better - Low or decreasing gross profit signals more competition or less demand Gross Profit Revenue - cost of goods sold Cost of Goods Sold The amount a company paid to purchase or manufacture the goods (inventories) that it sold Net Income Revenue - Expenses Operating Income gross profit - operating expenses Higher leads to more profitable The income statement reports Revenues Expenses Net Income or Loss Balance Sheet Assets = Liabilities + Stockholders' Equity Assets on a Balance Sheet Most are reported at a historical cost Cash assets first then all the way to long term and intangible assets Liabilities on a Balance Sheet Current liabilities first then long term liabilities To determine a depreciation expense, a company makes 3 estimates: 1. Useful Life 2. Salvage Value 3. Depreciation Method Depreciation the decline in economic potential (using up) of plant assets originating from wear, deterioration, and obsolescence Amortization The periodic writing off of an account balance to expense. Similar to depreciation and usually refers to the periodic writing off of an intangible asset. Non-Cash Expense Any expense that is not an actual cash flow, but is recorded in the financial statements. An example is depreciation. Liability The obligations or debts, that an entity must pay in money or services at some time in the future because of past transactions or events Debt vs liabilities Debt: when interest is clearly stated Liability: no true way to find out the interest rate All of _____ is a _________. But not all _____ is/are ________. Debt Liability Liability Debt Operating Profit Margin Operating profit / sales revenue What is a 10k audited annual report four financial statements Management's discussion and analysis Income statement Reports on a company's performance over a period of time Statement of Cash Flows Reports cash inflows and outflows form 3 types of activies - Operating - Investing - Financing Balance Sheet Reports a company's financial position at a point in time PPE Property, plant and equipment