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26 Cards in this Set
- Front
- Back
balance sheet
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a financial snapshot
of all the assets the company owns and all the claims against those assets. |
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assets = ___ + ____
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liabilities + shareholders' equity
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current asset
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any asset or liability that will turn into cash within one year. all else is long-term
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earnings
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measure the extent to which net sales generated during the accounting period exceeded expenses incurred in producing the sales
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earnings aka
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profits or income
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accrual principle means
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revenue is recognized
at time of sale not when customer pays |
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two types of depreciation
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straight line
accelerated |
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accelerated depreciation
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more depreciation in early years of asset's life
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two sets of financial records
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managing and reporting to shareholders
minimize taxes |
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net income
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net profit
proverbial bottom line total revenue less total expenses |
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operating income
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profit from day-to-day operations excluding taxes, interest income, expense, and extraordinary items
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pro forma earnings aka
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core earnings
ongoing earnings operating earnings |
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pro forma earnings
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total revenues less total expenses, omitting any and all expenses the company believes might cloudinvestor perceptions of the true earning power of the business.
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a company generates cash in two ways:
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by reducing an asset
increasing a liability |
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cash flow statement classifies the cash flows according to
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operating activities
long term investing activities financing activities |
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cash is used in two ways
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to increase an asset account
to reduce a liability account |
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sources and use statements
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poor man's cash flow statement
total use must equal total source place balance sheets side by side and see if source or use |
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increases in liabilities and decreases in assets are
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sources of funds
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increases in assets and decreases in liabilities are
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uses of funds
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goodwill
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The value of a business to a purchaser over and above its net asset value. It reflects the value of intangible assets like:
* reputation * brand name * good customer relations * high employee morale and other factors which improve the company's business. |
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amortize
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liquidate gradually
the distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule. |
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amortization (accounting)
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gradual recognition of certain expenses associated with intangible assets
such as trademarks, copyrights, goodwill and so on, typically over a period of several years. |
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cash flow
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movement of money
into or out of a cash account over a period of time |
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book value definition
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1. The value at which an asset is carried on a balance sheet.
2. The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities. |
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uses of book value
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the accounting value of a firm.
1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated. 2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced. |
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What's the difference between book and market value?
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Book value is the price paid for a particular asset. This price never changes so long as you own the asset.
On the other hand, market value is the current price at which you can sell an asset. For example, if you bought a house 10 years ago for $300,000, its book value for your entire period of ownership will remain $300,000. If you can sell the house today for $500,000, this would be the market value. Book values are useful to help track profits and losses. If you have owned an investment for a long period of time, the difference between book and market values indicates the profit (or loss) incurred. |