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FINANCIAL STATEMENTS, TAXES, AND CASH FLOW., GARAY LOPEZ ANA ERANDI 2CV8 -…
FINANCIAL STATEMENTS, TAXES, AND CASH FLOW.
THE INCOME STATEMENT
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NONCASH ITEMS
Expenses charged against revenues that do not directly affect cash flow, such as depreciation.
Financial statement summarizing a firm’s performance over a period of time. Revenues-Expenses=Income
TIME AND COSTS
It is often useful to think of the future as having two distinct parts: the short run and the long run. The distinction has to do with whether costs are fixed or variable. In the long run, all business costs are variable.
THE BALANCE SHEET
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LIQUIDITY
Refers to the speed and ease with which an asset can be converted to cash. Gold is a relatively liquid asset; a custom manufacturing facility is not
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DEBT VERSUS EQUITY
The use of debt in a firm’s capital structure is called financial leverage. The more debt a firm has
Equity holders are entitled to only the residual value, the portion left after creditors are paid. Shareholders’ equity Assets Liabilities
ASSETS: THE LEFT SIDE
Current
A current asset has a life of less than one year. For example, inventory.
Fixed
Has a relatively long life. Can be tangible, such as a truck or a computer, or intangible, such as a trademark or patent
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TAXES
CORPORATE TAX RATES
A peculiar feature of taxation instituted by the Tax Reform Act of 1986 and expanded in the 1993 Omnibus Budget Reconciliation Act is that corporate tax rates are not strictly increasing.
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CASH FLOW
Mean the difference between the number of dollars that came in and the number that went out.
Cash flow from assets=Cash flow to creditors+Cash flow to stockholders
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CASH FLOW FROM ASSETS
Cash flow from assets. The total of cash flow to creditors and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and change in net working capital.
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Capital Spending. Net capital spending is just money spent on fixed assets less money received from the sale of fixed assets.
Change in Net Working Capital. In addition to investing in fixed assets, a firm will also invest in current assets.
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