Managerial accounting -- Chapter 3

vocabulary

Depreciation -- the somatic charging of a portion of the costs of fixed assets against annual revenues over time
modified accelerated cost recovery system (MACRS) -- system used to determine the depreciation of assets for tax purposes
depriciable life -- time period over which an asset is depreciated
recovery period -- the appropriate depriciable life of a particular asset as determined by MACRS
operating flows -- Cash flows directly related to sale and production of the firm's products and services
investment flows -- Cash flows associated with purchase and sale of both fixed assets and business interests
financing flows -- Cash flows that result from debt and equity financing transactions; include incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to pay cash dividends or repurchase stock
non-cash charge -- an expense that is deducted on the income statement but does not involve the actual outlay of cash during the period; includes depreciation, amortization, and depletion
operating cash flow (OCF) -- the cash flow a firm generates from its normal operations; calculated as net operating profit after taxes (NOPAT)
net operating profits after taxes (NOPAT) -- a firm's earnings before interest and after taxes, EBITx(1-T)
free cash flow (FCF) -- the amount of cash flow available to investors (creditors and owners) after the firm has met all operating needs and paid for investments in net fixed assets and net current assets
financial planning process -- planning that begins with long-term, or strategic, financial plans that in turn guide the formulation of short-term, or operating, plans and budgets
Cash planning -- involves preparation of the firm's cash budget
profit pleading -- involves preparation of pro forma statements
long-term (strategic) financial plans -- lay out a company's planned financial actions and the anticipated impact of this actions over periods ranging from two to 10 years
short-term (operating) financial plans -- specify short-term financial actions and the anticipated impact of those actions
cash budget (cash forecast) -- a statement of the firm's planned inflows and outflows of cash that is used to estimate its short-term cash requirements
sales forecast -- the prediction of a firm's sales over a given period, based on external and/or internal data; used as the key input in the short-term financial planning process
external forecast -- a sales forecast based on the relationships observed between the firm sales and certain key external economic indicators
internal forecast -- a sales forecast based on a buildup, or consensus, of sales forecast through the firm's own sales channels
Cash receipts -- all of a firm's inflows of cash during a given financial period
Cash disbursements -- all outlays of cash by the firm during a given financial period
net cash flow -- the mathematical difference between the firm's cash receipts and its cash disbursements in each period
ending cash -- the sum of the firm's beginning cash and its net cash flow for the period
required total financing -- amount of funds needed by the firm if the ending cash for the period is less than the desired minimum cash balance; typically represented by notes payable
excess cash balance -- the excess amount available for investment by the firm if the period's ending cash is greater than the desired minimum cash balance; assumed to be invested in marketable securities
pro forma statements -- projected, or forecast, income statements and balance sheets
percentage of sales method -- a simple method for developing the pro forma income statement; it forecasts sales and then expresses the various income statement items as percentages of projected sales
judgmental approach -- a simplified approach preparing the pro forma balance sheet under which the values of certain balance sheet accounts are estimated, some as a percentage of sales and others by management assumption, and the firm's external financing is used as a balancing, or "plug," figure
external financing required ("plug" figure) -- under the judgmental approach for developing a pro forma balance sheet, the amount of external financing needed to bring the statement into balance. He can be either a positive or negative value