Internal and external Internal:Management, Control, Assessment,Įxternal: Stockholders and potential investors(ROI), creditors (looking for the likelihood of a payment) Which statement is also called the Profit and loss statement? Income statement 1What non-cash charges are included on the Income Statement? Depreciation expense What statement reports the financial position of a firm at a point in time? Balance sheet What statement reports the financial activity (performance) of a firm over time? Income statement What account on the Balance Sheet reduces the value of assets? Accumulated depreciation What account on the Balance Sheet represents the total contribution (from day one of operations) from stockholders from earnings that weren't paid out in dividends? Retained earnings What account on the Income Statement is a non-cash charge that reduces taxable income? depreciation expense incremental cash flows the difference between a firm's future cash flows with a project and those without the project Basic Financial Statements income statement, balance sheet, cash flow statement, statement of SH equity Format of the income statement 1. ![]() inflow, investment How are the common-size income statement and balance sheet constructed? Divide every item on the income statement by sales and every item on the Balance Sheet by total assets If the Operating Profit Margin has gone down from one year to the next on a common-size income statement while the Gross Profit Margin has gone up what explains the difference Operating expenses have to gone up as a percent of sales Why are financial ratios helpful in analyzing financial statements? Ratios factor out size differences so that we compare to companies of other sizes and to the same company across time What is a time series analysis? Analyzing a company's performance across time - trend analysis What is a cross sectional analysis using a benchmark? Analyzing a company's performance relative to another firm(s) Why analyze financial statements? Classify each of the following as a source or use of cash and whether it is an operating (O), investing (I) or financing (F) activity:ĥ. This requires a use of cash What changes to accounts on the balance sheet are cash inflows/outflows? Generally, any increase in an asset is a cash outflowĪny increase on the right hand side (liabilities + equity) is a cash inflowĪny decrease in an asset is a cash inflowĪny decrease on the right hand side is a cash outflow When an asset balance increases, this indicates that the firm has more of that asset, so why is this a use of cash? More money is invested in that asset than before 1. If a firm reduces their loan, a part of the loan is paid off. Is a decrease in accounts payable a source of cash or a use of cash? A decrease in accounts payable is a use of cash. Assets are investments, and an increase investment requires a use of cash to buy that investment. Is an increase in accounts receivable a source of cash or a use of cash? An increase in accounts receivables is a use of cash. Cash flows are categorized as being from Operating, Investment, or Financing activities. ![]() ![]() It is not possible to observe an increase in cash from looking at financial activity on the Income Statement because the Income Statement is not created using cash but rather matching of sales and expenses when they occur not when cash is collected or spent. It ties together activities on the Income Statement with changes on the Balance Sheet to explain where cash came from and where cash was used during the year. Describe the content and purpose of the cash flow statement The cash flow statement reconciles the change in the cash account on the Balance Sheet from year to the next.
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