Book value refers to the accounting net worth, or owner’s equity, of the business. Book value is presented on the balance sheet in the owner’s equity section. The owner’s equity section on the balance sheet equals the firm’s assets minus the firm’s liabilities. Book value can be calculated with all of the firm’s assets or […]
Current assets are economic resources which the firm expects to sell, convert to cash, or consume within the greater of one year or the firm’s operating cycle. Current assets include cash and equivalents, accounts receivable (also called trade receivables), notes receivable, inventory, and prepaid expenses. Items on the balance sheet are presented in order of
Current liabilities are obligations to the firm which must be settled within the greater of one year or an operating cycle. Typical current liabilities include accounts payable (also called trade payables), current portion of long-term debt, and taxes (income, sales, payroll) payable. Current liabilities are presented on the balance sheet before long-term liabilities. Current liabilities
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Cash flow from investing activities, also called investing cash flow, refers to the net difference between cash sources and cash uses related to a firm’s investing activities. Cash flow from investing activities is one of three sections of the cash flow statement. The other sections of the cash flow statement are cash flow from operating
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Common stock refers to the equity units of a corporation. Each stock is called a share. When a company creates its main formation document, known as the articles of incorporation, it states within the articles the number of authorized stock shares. Authorized shares are the maximum number of shares which the company can legally issue.
Cash flow from financing activities, also called financing cash flow, is the net cash flow associated with payments made from and to the firm’s capital providers. Cash flow from financing activities is one of three sections in the cash flow statement, the other two being cash flow from operating activities and cash flow from investing
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Assets are resources that are expected to provide the firm with future economic benefits. Assets may be categorized as long-term or current. A current asset is an economic resource expected to be consumed or converted to cash within one year or an operating cycle, whichever is longer. A long-term asset is an economic resource not
Cash equivalents are financial securities which can be sold quickly and without impairment in value. Common cash equivalent securities include U.S. Treasury bills and commercial paper. For accounting purposes, cash (bank balances and petty cash) and cash equivalents are lumped together into a single account on the balance sheet. This account is usually called cash
Cash flow from operations, also called operating cash flow, refers to the difference between cash received from operating sources and cash disbursed for inventory and operating expenses. Cash flow from operations is one of three sections on a firm’s cash flow statement. The other two sections are cash flow from financing activities and cash flow
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Accounts payable represent obligations of the firm to pay for goods purchased and services consumed but not yet paid for. Accounts payable is listed as a current liability on the firm’s balance sheet. Suppliers often provide goods and services to their business customers on terms which call for future payment. For example, an inventory wholesaler
