Download Finance, Business Finance - Chapter 2 Notes | BMGT 340 and more Study notes Corporate Finance in PDF only on Docsity! Finance — Chapter 2
Annual report: two sections: verbal section (why it happened) and then 4 financial
statements (what happened)
Balance Sheet: statement of the firm’s financial position at a specific point in time,
assets listed in order of “liquidity”, claims listed in order they must be paid (acts.
Payable usually 30 days, notes payable within 90 days)
Shareholders equity = assets — liabilities — hybrid securities (preferred stock)
*Risk of asset value fluctuations is born by common stockholders
*Preferred stock: don’t lose/gain; have a set dividend
* Stockholder’s equity is made up of “common stock” and “retained earnings”
Add to common stock by issuing more shares; add to retained earnings by earning a
profit and not paying out as many dividends.
Income Statement: statement summarizing the firm’s revenues and expenses over an
accounting period, generally a quarter or year
EBITDA: earnings before interest, taxes, depreciation and amortization
EPS = (net income) / (common shares outstanding)
Dividends Per Share = DPS = (Dividends paid to common stockholders) /
Common Shares outstanding
Book Value per Share = BVPS = (total common equity) / (common shares
outstanding)
Cash Flow per Share = CFPS = (net income + depreciation + amortization) /
(common shares outstanding)
Net Cash Flow: actual net cash that a firm generates during some specified period
Net Cash Flow = Net Income — Noncash revenues + Noncash charges
= Net Income + Depreciation
Statement of Cash Flows: summarizes the changes in a company’s cash position;
operating, investing and financing activities
Use of Cash: asset is increased or liability is decreased
Source of Cash: asset is decreased or liability is increased
Operating Assets: consist of the cash and marketable securities, accts receivable,
inventories and fixed assets necessary to operate the business, divided into working
capital and fixed assets; operating working capital — current assets used in operations
Non-operating Assets: cash and marketable securities above the level required for
normal operations, investments in subsidiaries, land held for later use
Net Operating Working Capital = All current assets ~ all current liabilities that don’t
Charge interest
*working capital acquired with investor supplied funds
