bus fin ch.3 part 1(Concept)

The annual report contains four basic financial statements: the income statement, the balance sheet, the cash flow statement, and statement of stockholders' equity.

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The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows.

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• False

Companies typically provide four basic financial statements: the fixed income statement, the current income statement, the balance sheet, and the cash flow statement.

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• False

On the balance sheet, total assets must always equal the sum of total liabilities and equity.

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• False

Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the amounts at which the assets are carried on the books.

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• False

The amount shown on the December 31, 2015, balance sheet as 'retained earnings' is equal to the firm's net income for 2015 minus any dividends it paid.

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• False

The income statement shows the difference between a firm's income and its costs--i.e., its profits--during a specified period of time. However, not all reported income comes in the form of cash, and reported costs likewise may not be consistent with cash outlays. Therefore, there may be a substantial difference between a firm's reported profits and its actual cash flow for the same period.

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If we were describing the income statement and the balance sheet, it would be correct to say that the income statement is more like a video while the balance sheet is more like a snapshot.

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• False

EBIT stands for earnings before interest and taxes, and it is often called 'operating income.'

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• False

EBITDA stands for earnings before interest, taxes, debt, and assets.

• True

• False