T6 Financial Statements Flashcards Preview

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Flashcards in T6 Financial Statements Deck (19)
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1
Q

Annual report has 3 important financial statements

A
  1. income statement - how good the company is at making money
  2. cash flow statement - how they’re paying for their operations and future growth
  3. balance sheet - what the company owns and owes
2
Q

Cash

A

sustain day-to-day operations and pay for its future growth

3
Q

Cash flow statement

A

details the flow of cash between the company and the outside world

4
Q

Operations

A

where the company makes money by selling whatever it sells

Sales revenue is cycled back to pay costs and expenses

5
Q

Net result

A

annual profit or loss

6
Q

Shareholders

A

money raised through sale of shares

7
Q

Other creditors

A

money raised through the other types of debt e.g. bank loans
- interest paid on this debt is shown in the Income Statement

8
Q

Dividends returned to shareholders

A
  • detailed in Income Statement

- a profitable company will return to shareholders excess profits from operations

9
Q

Interest paid to creditors

A

in a company with heavy debt, this can be a major drain on cash from Income Statement

10
Q

Cash flow to investing

A
  • for a company to increase its earnings from operations, larger scale
  • spending cash to buy property and equipment
11
Q

Cash flow from operations

A
  • profits from operations are sustainable source of cash

- actual amount of money that has entered the company from the outside world

12
Q

Cash flow from financing

A
  • issue shares in the company and sell them to the public => dilute shares
  • take on other types of debt e.g. bonds, bank loans => debt commits company to paying interest
13
Q

Income statement

A

the company’s “bottom line”

- its earnings or profit

14
Q

Cash flow statement

A

how the company is paying for its operations and future growth
- flow of cash between the company and outside world

15
Q

Balance sheet

A

what a company owns and what it owes

- what the company is worth = assets - liabilities

16
Q

Liquidity

A

how quickly a company can turn its assets into cash

17
Q

Current ratio

A

dividing current assets by current liabilities

  • measure of a company’s ability to pay off its short-term debt as it comes due
  • low ratio = have difficulty paying bills
  • high ratio = not using funds efficiently
18
Q

Quick or “acid-test” ratio

A

calculated by dividing sum of cash and equivalents and accounts receivable by current liabilities
- eliminates inventories from consideration, least liquid of the major current asset categories

19
Q

Cash burn rate

A

expressed in cash spent per month and is calculated by dividing the company’s most recent annual change in cash and equivalents by 12

  • rate at which the company is using up cash
  • can determine how long it will take of spending before the company needs to refinance