The exercise was created 2021-11-29 by mikabjorkman. Question count: 50.

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  • Balance Sheet Snapshot in time of a firm's financial position; divided into Assets (L) and Liabilities (R) together with Stockholders Equity
  • Asset What the company Owns
  • Current Assets Be converted into cash within one year; inc. Cash/Market Securities, Accounts Receivable and inventories
  • Long-term Assets Net property, Plant and Equipment. Tangible products with wear and tear
  • Accounts receivable amounts owed to the firm by customers who have purchased goods or services on credit
  • accumulated depreciation the total amount deducted over its life, recognizes the wear and tear in buildings and equipments
  • the book value of an asset the value shown in the firm's financial statements, equal to its acquisition cost less accumulated depreciation
  • liabilities what the company owes
  • current liabilities liabilities that will be satisfied within one year; Accounts payable, short-term debt/notes payable, Salary and taxes
  • accounts payable the amounts owed to supplies for products or services purchased with credit
  • Short-term debt/notes payable current maturities of long-term debt, which are all repayments of debt that will occur within the next year
  • salary and taxes owned but have not yet been paid and deferred or unearned revenue, which is revenue that has been received for products that have not yet been delivered
  • long-term liabilities liabilities that extend beyond one year; long-term debt and capital leases
  • long-term debt ant loan or debt obligation with a maturity of more than a year
  • capital leases long-term lease contracts that obligate the firm to make regular lease payments in exchange for use of an asset
  • deferred taxes taxes that are owned but not have yet been paid
  • Stockholders Equity the difference between the value of the firm's assets and liabilities = Accounting measure for the firm's net worth
  • Book value Acquisition cost - depreciation
  • market value of equity cannot be negative, often differs substantially from book value, market value of stock
  • balance sheet analysis liquidation value, Market-to-book Ratio, Enterprise Value
  • liquidation value value of the firm if all assets were sold and liabilities paid
  • Enterpise value value of the business itself, value of underlying business assets
  • income statement list the firm's revenues and expenses over a period of time, bottom line of the income statement, shows a firm's net income or earnings, measure the profitability during the period
  • gross profit third line in income statement - the different between sales revenues and the costs.
  • operating income gross profit - operating expenses
  • EBIT source of income/expenses that arise form activities that are not central of the firm
  • Net income represents the total earnings of the firm's equity holders, often reported through earnings per share or EPS
  • Statement of Cash Flows A Statement that utilizes the amount of cash the firm has generated from the income statement and balance sheet and how the cash has been allocated during a set period.
  • Included in Cash Flow Operating, investment and Financing activities
  • Operating Activities adjust for changes to net working capital that arises from changes to accounts receivable, accounts payable or inventory.
  • Investment Activities list of the cash used for investment, can be purchases of new property, plant and equipment and are also referred to as capital expenditures
  • financial activities shows the flow of cash between the firm and investors
  • Statement of Stockholders equity on the balance sheet, the amount that come from issuing shares versus retained earnings
  • profitability ratio profitability of a firms business and how it relates to the value of the firm's shares are provided on the income statement.
  • liquidity ratio information in the balance sheet to assess a firm's financial solvency or liquidity.
  • working capital ratio combined information from income statement and balance sheet to estimate how efficiently the firm is utilizing its net working capital
  • interest coverage lenders often asses a firm's ability to meet its interest obligations by comparing its earnings with its interest expenses using the internet coverage ratio.
  • leverage ratio in the balance sheet, or to what extent it relies on debt as a source of financing
  • valuation ratio to estimate the market value of a firm
  • operating returns to evaluate the firm's return on investment by comparing its income to its investment using ratios such as the firms return to equity ROE
  • risk-free interest rate the interest rate at which Monet can be borrowed or lent without risk
  • present value the cash cost of "doing it yourself" - the amount you need to invest at the current interest rate to recreate the cash flow
  • Net present value the different between the present value of its benefits and the present value of its costs
  • NPV decision rule when making an investment decision, take the alternative with the highest NPV. choosing this alternative is equivalent to receiving its NPV in cash today
  • Arbitrage the practice of buying and selling equivalent goods in different markets to take advantage of a price difference
  • the arbitrage opportunity state where it is possible to make a profit without taking any risk or making any investment
  • law of price if equivalent investment opportunities trade simultaneously in different competitive markets, then they must trade for the same price in both markets
  • no-arbitrage price of security the set price in the normal market where no arbitrage price exists, this price for the bond is called __
  • the price of risk investors tend to invest less when cash flow is risky
  • seperation principle we can evaluate an investment decision separately from the decision the firm makes regarding how to finance the investment or any other security transactions the firm is considering

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