Which of the following statements is CORRECT?

The statement of cash flows for 2009 shows how much the firms cash (the total of currency, bank deposits, and short-term liquid securities, or cash equivalents) increased or decreased during 2009. The statement of cash flows reflects cash flows from operations and from borrowings, but it does not reflect cash obtained by selling new common stock. The statement of cash flows reflects cash flows from continuing operations, but it does not reflect the effects of changes in working capital. The statement of cash flows reflects cash flows from operations, but it does not reflect the effects of buying or selling fixed assets. The statement of cash flows shows where the firms cash is located, with a listing of all banks and brokerage houses where cash is on deposit.

Which of the following statements is CORRECT?

The income statement for a given year, say 2009, is designed to give us an idea of how much the firm earned during that year. Publicly owned companies are not required to follow standardized accounting procedures that are known as Generally Accepted Accounting Principles (GAAP). If a firm follows generally accepted accounting principles (GAAP), then its reported net income will be identical to its reported net cash flow. The focal point of the income statement is the cash account, because it cannot be manipulated by accounting tricks. Publicly owned companies are not required to follow standardized filing procedures as specified by the Securities and Exchange Commission (SEC).

Which of the following statements is CORRECT?

For most companies, the market value of the stock differs from the book value of the stock as reported on the balance sheet. The balance sheet for a given year, say 2009, tells us how much money the company earned during that year. A typical industrial companys balance sheet lists the firms longest lived assets first, then goes on down to the assets that will be converted to cash. The balance sheet for a given year, say 2009, is designed to give us an idea of what happened to the firm during that year. The difference between the total assets reported on the balance sheet and the debts reported on the statement tells us the current market value of the stockholders equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP).

Which of the following statements is CORRECT?

Four key financial statements are the balance sheet, the income statement, the statement of cash flows, and the statement of retained earnings. The balance sheet gives us a picture of the firms financial situation over a period of time. The income statement gives us a snapshot of what is happening at a point in time. The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year. The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.

Which of the following statements would most people in business agree with?

There is no good reason to expect its stockholders and bondholders to react differently to the types of assets that a firm invests in One disadvantage of operating as a corporation rather than as a partnership is that corporate shareholders are exposed to more personal liability than partners. Stockholders should generally be more willing than bondholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns. Relative to sole proprietorships, corporations generally face fewer regulations, and they also find it easier to raise capital. Bondholders should generally be more willing than stockholders to have managers invest in risky projects with high potential returns as opposed to safer projects with lower expected returns.

Which of the following statements is CORRECT?

Typically, a firms EBIT should exceed its EBITDA. The more depreciation a firm has in a given year, the higher its EPS, other things held constant. Typically, a firms DPS should exceed its EPS. If a firm is more profitable than average (e.g., Google), we would normally expect to see its stock price exceed its book value per share. If a firm is more profitable than average, we would normally expect to see its book value per share exceed its stock price, especially after several years of high inflation.

Which of the following statements is CORRECT? (Points : 4)

The more depreciation a firm reports, the higher its tax bill, other things held constant. Net cash flow (NCF) is defined as follows: Net Cash Flow = Net Income + Depreciation and Amortization Charges Depreciation reduces a firms cash balance, so an increase in depreciation would normally lead to a reduction in the firms net cash flow. People sometimes talk about the firms net cash flow, which is shown as the bottom entry on the income statement, as the bottom line. Depreciation and amortization are not cash charges, so neither of them has an effect on a firms reported profits.