FIN 300 - Midterm 1 Notes - Agency Problem Conflict of...

This preview shows page 1 - 2 out of 3 pages.

Agency Problem: Conflict of Interest between the firm’s owners (principals) and its managers (agents) Chapter 2 - Net Working Capital: The difference between Current Assets and Current Liabilities - Book Value is not equal to Market Value o Assets are recorded on the Balance Sheet at there Book Value o Historic cost less accumulated depreciation is known as Book Value o The price at which a firm can resell its assets is known as Market Value - Income Statement o Net Income – Dividends Paid = The additions to Retained Earnings on the Balance Sheet o Depreciation is a non-cash item Cash Flow - Difference between the Sources of Cash and the Uses of Cash - Number of dollars that come in and go out - 3 Sections: Operating Cash Flow (Everyday operating activities of producing and selling), Investment Activities (Purchases of fixed assets less sales of fixed assets), Financing Activities (Net new borrowing + Net new equity – dividends paid) o Three Components: Operating Cash Flow, Net Capital Spending (Net spending on Fixed assets), Additions to Net Working Capital (Changes in Current Assets V. Current Liabilities) - CFassets = CFcreditors + CFstockholders - CFassets = Free cash flow o Additions to Net Working Capital = Operating Cash Flow – Net Capital Spending – Additions NWC o Operating Cash Flow = Net Income + Depreciation + Interest Paid o Operating Cash Flow = EBIT + Depreciation – Taxes o Net Capital Spending = Net Fixed end – Net Fixed Assets beg + Depreciation o Additions to Net Working Capital = NWC end – NWC beg - CF to Creditors = Interest Paid – Net New Borrowing - CF to Shareholders = Dividends paid – Net New Equity Raised Chapter 3 ` - Uses of Cash: increase on the left hand side or decrease on the right hand side - Sources of Cash: decrease on the left hand side or increase on the right hand side - Common Size and Common Base Year are two ways to standardize financial statements - Common Size Statement is a standardized financial statement presenting all items as a percentage - Common Size Balance sheet expresses each item as a percentage of total assets - Common Size income statement expresses each item as a percentage of sales - Common Base Year

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture