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Stock price

The market value of stockholder's equity divided by the number of shares outstanding


-The matching principal dictates that revenues be matched with expenses.
-Income is reported when earned and expenses recorded when incurred, even though no cash flow may have occurred.

Marginal tax rates

the percentage paid on the next dollar earned

Average tax rates

o Your tax bill divided by our taxable income, in other words percentage of your income that goes to pay taxes

Networking Capital

-Usually grows with the firm
-Is an important input in capital budgeting analysis
-Equals: CA-CL

Sources of cash

-Increase in a liability or equity account
-Decrease in an asset account

Uses of cash

-Decreases in a liability or equity account
-Increase in an asset account

3 components of the statement of cash flows

-Cash flow from operating activities
-Cash flow from investing activities
-Cash flow from financing activities

o When analyzing BS, should take 3 things into account

Accounting liquidity, debt versus equity, and value versus cost

o Accounting Liquidity

o Refers to the ease and quickness with which assets can be converted to cash

o Current Assets

o Most Liquid and include cash and those assets that will be turned into cash within a year from the date of BS

o Inventory

o Composed of raw materials, work in process, and finish goods

o Fix assets

o Least liquid

o Tangible Fix assets

o Property, plant, and equipment

o Accounting value of firm's assets

o Usually known as carrying value or book value of assets

o Market Value

o Is the price at which willing buyers and sellers would trade the assets

o Balance sheet

o Is an accountant's snapshot of the firm's accounting value on a particular date

o Depreciation

o Accountant's estimate of cost of equipment used up in the production process

o Deferred taxes

o Differences between accounting income and true taxable income
o Is not a cash flow

o Product cost

o Total production costs incurred during a period- raw materials, direct labor, and manufacturing overhead

o Period cost

o Costs that are allocated to a time period
o Also called selling, general, and administrative expenses

o Debt service

o The amount that creditors are paid

o Interest Expense

o Primary difference between accounting cash and financial cash

o Income Statement

o Measures performance over a specific period of time, say a year

o Noncash items

o Items that are expenses against revenues, but that do not affect cash flows
o Most important one: Depreciation

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