Corporate Finance Essentials

A commitment made by a company to borrow funds for a specific purpose, often to purchase assets.

A type of debt security that represents a loan made by an investor to a borrower, typically a company, with a promise of repayment with interest.

The process of replacing existing debt with new debt, often at a different interest rate or with a new maturity date.

The date on which a debt obligation is scheduled to be paid in full.

The ability of a company to fulfill its financial obligations, including debt repayment.

Expenses are incurred in the normal course of business operations to generate revenue, while losses are incurred due to unusual events or transactions that are not part of the entity's regular business activities.

Expenses are usually recorded in the income statement, while losses can be presented separately or included as a component of expenses depending on the nature of the loss.

Examples of expenses include cost of goods sold, salaries, rent, and utilities. Examples of losses include losses from natural disasters or asset impairments.

Expenses are deducted from revenue to arrive at net income, while losses are also deducted from revenue but can have a significant impact on the bottom line.

The nature of expenses and losses can influence the classification and reporting of these items in financial statements. Differences in accounting standards can lead to variations in treatment.

Expenses are costs incurred by a company in the process of generating revenue. They represent the resources used or consumed to operate the business.

Shareholders' equity represents the owners' stake in a company. It's the residual value of assets after deducting liabilities.

Gains and losses are non-operating items that affect a company's profitability. They arise from events outside the core business activities.

Revenues represent the total amount earned by a company from its core operations.

An income statement summarizes a company's financial performance over a specific period. It shows the revenues, expenses, gains, and losses that determine the net income or loss.

When a company experiences a loss from discontinued operations, the amount of the loss is reported before tax in a separate section of the income statement. This section appears between the income from continuing operations and the net income.

If a company has a loss from discontinued operations, the amount of the loss after taxes is reported in a separate section of the income statement. This section comes between income from continuing operations and the net income.

Income from continuing operations refers to the earnings generated from the company's main business activities that are expected to continue into the future. It's essentially the company's core business performance.

Net income represents the final profit or loss a company makes during an accounting period. It's calculated by subtracting all expenses and losses from the company's revenues.

Discontinued operations refer to the sale or disposal of a business unit or segment that is no longer considered part of the company's primary operations. This event usually has a significant impact on the company's financial results.

A statement that summarizes the changes in a company's shareholders' equity over a period of time.

It reconciles the beginning and ending balances in shareholders' equity accounts, reflecting changes from net income, dividends, and other transactions.

It lists all shareholder equity accounts, such as common stock, retained earnings, and treasury stock, along with their corresponding dollar amounts.

The statement of shareholders' equity is a critical financial statement that helps investors, creditors, and management understand how the company's equity has changed over time.

The statement is typically prepared for a specific period, such as a quarter or a year, and is included in a company's annual report.

The purchase of a long-term asset for $5,000 would be considered an investment, not an expense or loss in the period. However, borrowing $10,000 from the bank is a liability, which needs to be recorded on the balance sheet.

A productive asset is an asset that will be used for more than one year, aiding in producing future revenue. This distinguishes it from assets with shorter lifespans, like inventory or supplies.

A balance sheet reports the financial position of a business, including its assets, liabilities, and owner's equity. It's a snapshot of the company's financial health at a specific point in time, providing a detailed picture of what the company owns (assets) and owes (liabilities).

The acquisition of a long-term productive asset increases the company's total assets, while borrowing money increases the company's total liabilities. These changes need to be reflected in the balance sheet.

Generally accepted accounting principles (GAAP) provide a framework for recording and reporting financial transactions. In this case, GAAP dictates how the purchase of a productive asset and the borrowing of funds should be recorded on the balance sheet.