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Stocks 107: Introduction to Financial Statements

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1.
A company with lots of assets relative to liabilities on its balance sheet _______.
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Is healthier than a company with lots of liabilities. A company with lots of assets relative to liabilities would have relatively high equity (Assets - Liabilities = Equity) and less risk of going bankrupt. Generally speaking, companies with lots of assets relative to liabilities are healthier and more resistant to setbacks than companies with lots of liabilities.
2.
What is a major difference between the income statement and the statement of cash flows?
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The statement of cash flows excludes noncash revenues and expenses. The statement of cash flows excludes noncash revenues and expenses, showing actual cash flows. Both the income statement and statement of cash flows show results for a period of time like a quarter or a year, and the income statement--not the statement of cash flows--provides a breakdown of revenues, expenses, and profits.
3.
The three elements of a balance sheet are _______.
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Assets, liabilities, and shareholder equity. The balance sheet tells you how much a company owns (its assets) and how much it owes (its liabilities). The difference between what it owns and what it owes is its equity.
4.
On the income statement, profits tell you _______.
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The difference between how much a company brought in and how much it spent during a given period. A companys profits are the difference between how much it brought in (its revenues) and how much it spent (its expenses) during a given period.
5.
A companys income statement shows you its revenues and expenses _______.
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Over a specific time frame. The income statement shows a companys revenues and expenses over a specific time frame such as three months or a year.
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