Income Statement
What is the formula for Net Income?
Net Income = Revenue – Expenses (COGS + Operating Expenses + Interest + Taxes)
What are the three main sections of a balance sheet?
Assets, Liabilities, and Shareholders’ Equity
What are the three sections of the cash flow statement?
Operating, Investing, and Financing
What is the key difference between stocks and bonds?
Stocks represent ownership; bonds are loans made to a company or government.
What does SWOT stand for?
Strengths, Weaknesses, Opportunities, Threats
This line item represents a company’s total revenue before expenses.
Total Sales
What is working capital, and what does it indicate?
Working Capital = Current Assets – Current Liabilities; it measures short-term financial health and liquidity.
What is a dividend?
A payment made by a company to its shareholders, usually from profits.
What’s the main reason companies issue bonds instead of stock to raise money?
To raise capital without giving up ownership or control of the company.
A “moat” in business refers to what?
A company’s sustainable competitive advantage that protects it from rivals
What’s the difference between gross profit and operating profit?
Gross profit = Revenue – COGS; Operating Income = Gross profit – Operating Expenses (like SG&A).
If a company has $10M in assets and $7M in liabilities, what is its equity?
$3M
How do you calculate cash flow to creditors?
Interest paid – net new borrowing
Why are bonds called “fixed income” instruments?
Bonds promise to pay fixed future payments. The payments come in one of two payments:
Single payment at maturity
Single payment at maturity alongside coupon payments up to maturity
Explain how you calculate EBT from Revenue/Sales. Include the terms Gross Profit, Operating Expenses, EBIT, and Interest Expenses.
Revenue−COGS = Gross Profit
Gross Profit−Operating Expenses = EBIT
EBIT - Interest Expenses = Pre-Tax Income/EBT
If a company’s revenue grows but its net income shrinks, what might be happening?
Expenses (like costs or taxes) are rising faster than revenue.
This type of asset includes patents, goodwill, and brand value.
Intangible Assets
If a company issues new stock and pays dividends, what is its cash flow to stockholders?
Cash flow to stockholders = Dividends paid – net new equity raised
What happens to bond prices when interest rates rise?
Bond prices fall.
Name two examples of competitive moats.
Intangibles (e.g., Supreme), Network Effects (e.g., Facebook), Switching Costs (e.g., Adobe), Scale (e.g. Walmart)
This profitability ratio is calculated as Net Income ÷ Revenue. What is it?
Net Profit Margin
How does net income from the income statement affect the balance sheet?
Net income increases retained earnings on the balance sheet (after subtracting any dividends paid).
What is the formula to calculate free cash flow?
Free Cash Flow = Operating Cash Flow – Net Capital Spending – Changes in NWC
Would rate of return for a T-bond be higher than a corporate bond? Explain your answer ...
Corporate Bond; greater risk means more returns needed
T-bond backed, minimal risk means less returns needed
You are promised $1,000 five years from now. If the annual discount rate is 5%, what is the present value of that $1,000?
Present Value = $1,000 ÷ (1 + 0.05)^5 = $783.53 (approx.)