ESSENTIALS OF CORPORATE FINANCE ROSS
KEY CONCEPTS AND PRACTICE QUESTIONS
◉ Income Statement Equation.
Answer: Revenues-Expenses=Income
◉ Cash Flow Identity.
Answer: Cash flow from assets=Cash flow to creditors+Cash flow to
stockholders
◉ Cash Flow from Assets.
Answer: Cash flow from assets=Operating cash flow-Net capital
spending-Change in net working capital
◉ Operating Cash Flow.
Answer: Operating cash flow=Earnings before interest and
taxes+Depreciation-Taxes
◉ Net Capital Spending.
Answer: Net capital spending=Ending net fixed assets-Beginning net
fixed assets+Depreciation
, ◉ Change in Net Working Capital.
Answer: Change in net working capital=Ending NWC-Beginning
NWC
◉ Cash Flow to Creditors.
Answer: Cash flow to creditors=Interest paid-Net new borrowing
◉ Cash Flow to Stockholders.
Answer: Cash flow to stockholders=Dividend paid-Net new equity
raised
◉ Current Ratio.
Answer: Current assets/Current liabilities
◉ Quick, or Acid-Test, Ratio.
Answer: Current assets-Inventory/Current liabilities
◉ Cash Ratio.
Answer: Cash/Current liabilities
◉ Total Debt Ratio.
Answer: Total assets-Total equity/Total assets
KEY CONCEPTS AND PRACTICE QUESTIONS
◉ Income Statement Equation.
Answer: Revenues-Expenses=Income
◉ Cash Flow Identity.
Answer: Cash flow from assets=Cash flow to creditors+Cash flow to
stockholders
◉ Cash Flow from Assets.
Answer: Cash flow from assets=Operating cash flow-Net capital
spending-Change in net working capital
◉ Operating Cash Flow.
Answer: Operating cash flow=Earnings before interest and
taxes+Depreciation-Taxes
◉ Net Capital Spending.
Answer: Net capital spending=Ending net fixed assets-Beginning net
fixed assets+Depreciation
, ◉ Change in Net Working Capital.
Answer: Change in net working capital=Ending NWC-Beginning
NWC
◉ Cash Flow to Creditors.
Answer: Cash flow to creditors=Interest paid-Net new borrowing
◉ Cash Flow to Stockholders.
Answer: Cash flow to stockholders=Dividend paid-Net new equity
raised
◉ Current Ratio.
Answer: Current assets/Current liabilities
◉ Quick, or Acid-Test, Ratio.
Answer: Current assets-Inventory/Current liabilities
◉ Cash Ratio.
Answer: Cash/Current liabilities
◉ Total Debt Ratio.
Answer: Total assets-Total equity/Total assets