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Statement of Cash Flows
The sources and uses of cash over a stated period of time are reflected on the
Common-size income statement is an accounting statement that expresses all of a firm's expenses as a percentage of
Common-base year statement
Standardizes items on the income statement and balance sheet relative to their values as of a common point in time
Relationships determined from a firm's financial information and used for comparison purposes
Standard Industrial Classification
U.S. gov't coding system that classifies a firm by the nature of its business operations
Increase in long-term debt & dividends paid are _____ on the Statement of Cash Flows
Cost of Good Sold, Decrease in accounts payable, Interest paid are _____ on the Statement of Cash Flows
According to the Statement of Cash Flows, a decrease in accounts receivable will ___ the cash flow from ___ activities
According to the Statement of Cash Flows, an increase in interest expense will ___ the cash flow from ___ activities
Total assets for the current year
On a common-size balance sheet all accounts are expressed as a percentage of
base-year accounts receivable
On a common-base year financial statement, accounts receivable will be expressed relative to
Decrease in quick ratio
An increase in current liabilities will have which one of the following effects, all else held constant
An increase in which of the following will increase a firm's quick ratio without affecting its cash ratio
a supplier, who requires payment within ten days, should be most concerned with which ratio when granting credit?
cover operating costs for the next 48 days
Interval measure = 48. Firm has sufficient liquid assets to do which?
Over the past year, the quick ratio for a firm increased while the current ratio remained constant. Which must have occurred?
payment of interest to a lender
The cash coverage ratio directly measures the ability of a firm's revenues to meet which one of its obligations?
Decrease in days' sales in inventory
Corner Hardware increased amt. of goods sold while maintaining inventory constant. Cost per unit & selling price per unit are constant. How is this reflected in financial ratios?
Ratios that measure how efficiently a firm manages its assets and operations to generate net income are referred to as ____ ratios
If a firm produces a 12% return on assets and also a 12% return on equity, it has an equity multiplier of
return on equity
Return on assets x Equity multiplier and net income/total equity can be used to compute what?
How many sales dollars has the firm generated per each dollar of assets? How many dollars of assets has a firm acquired per each dollar in shareholder's equity? How much net profit is a firm generating per dollar of sales?
$600 in debt for $1000 in equity. Uses cash to decrease debt while maintaining equity and net income. Which decreases?
uses the same accounting procedures as other firms in the industry
It is easier to evaluate a firm using financial statements when the firm
financial ratios to the firm's historical ratios
The most acceptable method of evaluating the financial statements of a firm is to compare the firm's current
Problems when comparing separate financial statements
Either one, or both, of the firms may be conglomerates and thus have unrelated lines of business. The operations of the two firms may vary geographically. The firms may use different accounting methods. The two firms may be seasonal in nature and have different fiscal year ends.
discounted cash flow valuation
the process of valuing an investment by discounting its future cash flows
the amount of time required for an investment to generate cash flows sufficient to recover its initial cost
discounted payback period
the length of time required for an investment's discounted cash flows to equal to its initial cost
net present value profile
a graphical representation of the relationship between an investment's NPV and various discount rates
multiple rates of return
the possibility that more than one discount rate will make the NPV of an investment zero
mutually exclusive investment decision
a situation in which taking one investment prevents the taking of another
the present value of an investment's future cash flows divided by its initial cost
frequently estimated by calculating the present value of future cash flows (to estimate market value) and then subtracting the cost
Cash flows are modified by discounting the negative cash flows back to the present, compounding cash flows to the end of the project's life, or both
discounting or compounding
MIRRs are not truly "internal" because they depend on externally supplied __ rates
sometimes used to rank projects when a firm has more positive NPV investments than it can currently finance
If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery
increasing the project's initial cost at time zero
which will decrease the net present value of a project?
generally accepted accounting principals
the common set of standards and procedures by which audited financial statements are prepared
expenses charged against revenues that do not directly affect cash flow, such as depreciation
cash flow from assets
consists of operating cash flow, capital spending, and change in net working capital
statement of cash flows
a firm's financial statement that summarizes its sources and uses of cash over a specified period
common-base year statement
a standardized financial statement presenting all items relative to a certain base year amount
relationships determined from a firm's financial information and used for comparison purposes
popular expression breaking ROE into three parts : operating efficiency, asset use efficiency, and financial leverage
Standard Industrial Classification
A U.S. govt code used to classify a firm by its type of business operations
incremental cash flows
the difference between a firm's future cash flows with a project and those without the project
the assumption that evaluation of a project may be based on the project's incremental cash flows
a cost that has already been incurred and cannot be removed and therefore should not be considered in an investment decision
the most valuable alternative that is given up if a particular investment is undertaken
accelerated cost recovery system
a depreciation method under U.S. tax law allowing for the accelerated write-off of property under various classifications
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