11 Apr 2012
School
Department
Course
Professor
Commerce 3FA3
Chapter 3: Working with Financial Statements
Sources of cash: A firm’s activities that generate cash
Uses of cash: A firm’s activities in which cash is spent
Statement of Cash flows: A firm’s financial statement that summarizes its sources and uses of
cash over a specified period
Common-size statement: A standardized financial statement presenting all items in percentage
terms. Balance sheets are shown as a percentage of assets and income statements as a
percentage of sales.
Common-base-year statement: A standardized financial statement presenting all items relative
to a certain base year amount
Financial ratios: Relationships determined from a firm’s financial information and used for
comparison purposes
Chapter 4: Long-term Financial Planning and Corporate Growth
Planning Horizon: The long-range time period the financial planning process focuses on, usually
the next 2-5 years
Aggregation: Process by which smaller investment proposals of each of a firm’s operational
units are added up and treated as one big project
Percentage of Sales Approach: Financial planning method in which accounts are projected
depending on a firm’s predicted sales level
Dividend Payout ratio: Amount of cash paid out to shareholders divided by net income
Retention Ratio or plowback ratio: Retained earnings divided by net income
Capital Intensity Ratio: A firm’s total assets divided by its sales or the amount of assets needed
to generate $1 of sales
External financing needed (EFN): The amount of financial required for balancing both sides of
the balance sheet
Internal Growth Rate: The growth rate a firm can maintain with only internal financing
Debt capacity: The ability to borrow to increase firm value
Sustainable Growth Rate: The growth rate a firm can maintain its given its debt capacity, ROE,
and retention ratio