Question

Define these business finance terms in your own words and then give a real world example of each: Operating Cash Flow, Treasury Stock, Common-Size Financial Statements, and DuPoint Identity.

Answer 1

1. Operating cash flow from business will be related to all such amount of cash which are generated by the company from its normal business operations and it will only represent the regular activities of the business.

For example, payment of interest will be operating activity for a commercial bank.

2. Treasury stock is a portion of previously outstanding shares which has been Repurchased by the company from the shareholder and these repurchasd shares are then held by the company for its own disposition.

For example, Treasury stock is the reserved stock or repurchase stock by the company

3. Common size financial statement is a financial statement which will be displaying percentage of a common base figure for all the elements of financial statements like base figures can be selected as total sales and then every other unit will be expressed as a percentage of total sales.

For example, It will be helping in analysing the performance of the company with itself over a longer period of time.

4. DuPont identity is is breaking down return on equity el of the company into three major components and they will be including the profit margin of the company and the equity multiplier of the company and the total asset turnover of the company so it will be providing a more accurate assessment of significant changing in return on equity of company.

For example return on equity through DuPont identity will be provide a better reflection of the return of the company and the leverage used by it in order to multiply its profits.