Chap 3

• What type of reports provide information to financial decision makers?

  Standard financial statements
• What are the three main types of financial statements?

  Balance sheets, income statements, cash flow statements
• What does GAAP stand for?

  Generally Accepted Accounting Principles
• What is the fundamental disagreement among analysts regarding financial variables?

  How to measure values of assets and liabilities
• What are the three important economic functions of financial statements?

  1. Provide information about current status and past performance
  2. Set performance targets and impose restrictions on managers
  3. Serve as templates for financial planning
• What does a balance sheet show?

  Assets and liabilities at a point in time
• What is the difference between assets and liabilities called?

  Net worth or owners' equity
• How are values of assets and liabilities measured according to GAAP?

  At historical acquisition costs
• Who determines the GAAP rules?

  Financial Accounting Standards Board
• What must corporations do to list their shares on an exchange?

  Conform with accounting standards and report regularly
• What are current assets?

  Cash and items convertible to cash within a year
• What is the value of cash and marketable securities in GPC's balance sheet?

  $100 million
• How much are receivables valued at for GPC?

  $50 million
• What is the total value of inventories for GPC?

  $150 million
• What is the reported value of noncurrent assets for GPC?

  $300 million
• What is the total assets value for GPC?

  $600 million
• What must current liabilities be paid off within?

  Within a year
• What is the difference between current assets and current liabilities called?

  Net working capital
• What is the value of GPC's long-term debt?

  $150 million
• What is the fixed interest rate on GPC's bonds?

  8% per year
• What is the annual interest expense associated with GPC's bonds?

  $12 million
• What does the income statement summarize?

  Profitability of the firm over a period
• How is income (profit) calculated?

  Difference between revenues and expenses
• What is the sales revenue for GPC?

  $200 million
• What is the cost of goods sold?

  Expense incurred in producing sold products
• What is gross margin income?

  Difference between sales revenues and cost of goods sold
• What does operating income represent?

  Gross margin income minus administrative expenses
• What is the interest expense on GPC's firm debt?

  $21 million
• What is taxable income?

  Operating income minus interest expense
• What is the corporate income tax rate for GPC?

  40%
• What is the corporate income tax paid by GPC?

  $15.6 million
• What is GPC's net income after taxes?

  $23.4 million
• How much cash dividends did GPC pay?

  $10 million
• What is retained earnings?

  Cumulative amount of past retained earnings
• What is the earnings per share for GPC?

  $23.40
• What does the cash flow statement show?

  All cash that flowed in and out
• Why is the cash flow statement useful?

  Focuses on cash position over time
• What accounting method does the income statement use?

  Accrual accounting method
• What are the three sections of the cash flow statement?

  Operating, investing, and financing activities

  
• What does cash flow from operating activities represent?

  Cash inflows from selling products minus expenses