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FIN3000 > Module 2 > Flashcards

Module 2 Flashcards

1
Q

GAAP

A

Generally Accepted Accounting Principals

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2
Q

Stockholders Report

A

summarizes and documents the firm’s financial activities during the past year

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3
Q

Income Statement

A

financial summary of the firm’s operations during a specified period

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4
Q

Balance Sheet

A

a summary statement of the firm’s financial position at a given time
balances the firm’s assets (what it owns) against its financing, which can be either debt (what it owes) or equity (what owners provided)

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5
Q

Current Assets/Liabilities

A

convert into cash or pay within one year

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6
Q

Long-Term Debt

A

payment is not due within one year

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7
Q

Income Statement Order

A

Sales Revenue - COGS = Gross Profit
Gross Profit - Operating Expenses = = Operating Profit
Operating Profit - (Interest + Taxes) = Net Income
Net Income - Preferred Stock Dividend = Earnings Available for Common Stockholders

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8
Q

Retained Earnings

A

cumulative total of all earnings, net of dividends, that the company has retained and reinvested; funds already reinvested in the business

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9
Q

Statement of Retained Earnings

A

Retained Earnings + Net Income - Dividends Paid = Retained Earnings

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10
Q

Statement of Cash Flows

A

summary of the cash flows over the period; provides insight into the operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities

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11
Q

Ratio Analysis

A

methods of calculating and interpreting financial ratios to analyze and monitor the firm’s performance

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12
Q

Cross-Sectional Analysis

A

comparison of different firms’ financial ratios at the same point in time

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13
Q

Time-Series Analysis

A

evaluates performance over time

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14
Q

5 Types of Financial Ratios

A

liquidity, activity, debt, profitability, and market ratios

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15
Q

Liquidity

A

ability to satisfy its short-term obligations as they come due

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16
Q

Current Ratio

A

compares a firm’s current assets to its current liabilities

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17
Q

Quick (Acid-Test) Ratio

A

similar to the current ratio except that it excludes inventory, which is generally the least liquid current asset

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18
Q

Activity Ratios

A

measure the speed with which assets and liabilities are converted into sales or cash; assess the efficiency with which a firm manages its total assets

19
Q

Inventory Turnover Ratio

A

judge the effectiveness of inventory management practices

represents the number of times per year the company sells its inventory

20
Q

Average Age of Inventory

A

measures how many days of inventory the firm has on hand

21
Q

Average Collection Period

A

evaluates credit and collection policies; meaningful only in relation to the firm’s credit terms

22
Q

Average Payment Period

A

evaluates the amount of time it takes the firm to pay suppliers

23
Q

Total Asset Turnover

A

measure of the efficiency with which the firm uses its assets to generate sales
indicates how many dollars of sales produced for each dollar of assets that it has invested; higher is more efficient

24
Q

Financial Leverage

A

the degree to which a firm uses debt financing, or other types of fixed-cost financing (preferred stock)

25
Q

Debt Ratio(s)

A
  1. measures of the degree of indebtedness

2. measures of the ability to repay debts

26
Q

Degree of Indebtedness

A

measure the amount of debt relative to other significant balance sheet amounts

27
Q

Coverage Ratio

A

whether a company can service their debt

prefer higher coverage ratios but could mean that they are conservative

28
Q

Debt Ratio

A

proportion of total assets financed by creditors

higher ratio means that a firm is using a larger amount of other people’s money to finance its operations

29
Q

Debt-to-Equity Ratio

A

proportion of total liabilities to common stock equity used to finance the firm’s assets

30
Q

Times Interest Earned Ratio

A

measures the ability to make contractual interest payments

the higher its value, the better able it is to fulfill its interest obligations

31
Q

Fixed Payment Coverage Ratio

A

measures the ability to meet all fixed-payment obligations

the higher the value, the better.

32
Q

Profitability Ratios

A

evaluate the firm’s profits with respect to its sales, assets, or the owners’ investment

33
Q

Common Size Income Statement

A

evaluates profitability in relation to sales

  1. gross profit margin
  2. operating profit margin
  3. net profit margin
34
Q

Gross Profit Margin

A

measures the percentage of each sales dollar remaining after the firm has paid for its cost of goods sold
the higher, the better

35
Q

Operating Profit Margin

A

measures the percentage of each sales dollar remaining after deducting operating expenses.
represents the “pure profits” earned on each sales dollar

36
Q

Net Profit Margin

A

measures the percentage of each sales dollar remaining after all costs and expenses
the higher, the better

37
Q

Earnings Per Share

A

represents the number of dollars earned during the period on behalf of each outstanding share of common stock

38
Q

Return on Total Assets/Investment

A

measures the overall effectiveness of management in generating profits with its available assets

39
Q

Return on Equity

A

focuses on the earnings that a company generates relative to the equity invested in the firm

40
Q

Market Ratios

A

relate the firm’s market value, as measured by its current share price, to certain accounting values
give insight into how investors in the marketplace believe the firm is doing in terms of risk and return

41
Q

Price/Earnings Ratio

A

measures the amount that investors are willing to pay for each dollar of a firm’s earnings
rate of growth that investors believe a firm will achieve
investors will pay a higher price for a firm they believe is less risky

42
Q

Market/Book Ratio

A

provides an assessment of how investors view the firm’s performance by comparing the market price (what investors are willing to pay) to the book value (value shown on the balance sheet)

43
Q

Book Value Per Share of Common Stock:

A

Total common stock equity / Number of shares of common stock outstanding

FIN3000 (2 decks)

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