FAS L1

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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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