Class 06

Question 1

why do we need a balance sheet?

Answer 1

1. liquidity
2. solvency
3. efficiency

Question 2

what is liquidity?

Answer 2

how quickly assets converts to cash

Question 3

what is solvency?

Answer 3

ability to pay one’s debt (debt ratio)

Question 4

what is efficiency?

Answer 4

inventory turnover

Question 5

what is an asset?

Answer 5

1. future economic benefit
2. present control by the company
3. past transactional result

Question 6

T/F: is brand considered an asset?

Answer 6

false

Question 7

how are assets measured?

Answer 7

1. historical + amortized cost (PPE)
2. current MV (asset sale)
3. current replacement cost
4. net realizable value (AR account)
5. present value (net FCF)

Question 8

what is a liability?

Answer 8

1. past transaction
2. future obligation
3. exchange or deferred revenue

Question 9

what is equity?

Answer 9

1. assets - liabilities
2. common + APIC + RE + AOCI - treasury

Question 10

what are current assets?

Answer 10

1. cash
2. short term investment
3. accounts receivable
4. inventories
5. prepaid items

Question 11

what is liquidity?

Answer 11

1. current ratio = CA / CL
2. quick ratio = liquid assets / CL

Question 12

what is solvency?

Answer 12

1. debt to asset ratio = debt / asset
2. interest earned = EBIT / interest expense

Question 13

what is the efficiency ratio?

Answer 13

1. inventory turnover = COGS / avg inventory
2. receivables turnover = net sales / avg. receivables

Question 14

what is the operating cycle?

Answer 14

time between selling inventory in exchange for cash

Question 15

what are non-current assets?

Answer 15

1. long term investments
2. PPE
3. intangible assets

Question 16

what are current liabilities?

Answer 16

1. payables
2. deferred revenue
3. obligations w/in 1 year

Question 17

what are long term liabilities?

Answer 17

1. long term debt
2. long term obligations (warranties)
3. operating obligations (pensions)