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Flashcards in CFA Deck (32)
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1

 Situations when a company receives cash in advance and actually delivers the product or service later, perhaps over a period of time

Recorded as a liability for unearned revenue 

Revenue realized over time as products/services are delievered

2

 long-term contract

Spans a number of Accounting Periods

3

barter transactions

(non-monetary exchanges)

4

 Long-lived assets

  are assets expected to provide economic benefits for T > 1

ex.  land (property), plant, equipment, and intangible assets (assets lacking physical substance) such as trademarks

5

Goodwill

Acquistion which purchase price > Net Identifiable Asset (Identifiable Asset acquired less assumed liabilities)

6

Ordinary shares/Common shares

Owners of the comapany

Paid last in a liquidation of company

Benefits most when company does good

7

Complex Capital Structure

If company has financial instruments that are potentially convertible into common stock

8

 Diluted EPS

If all dilutive financial instruments were converted 

9

Basic EPS

Avaliable Income

/

Weighted Average Number of Common Shares Outstanding over a Period

10

Basic EPS =

Net Income - Preferred Dividends 

/

Weighted average number of shares outstanding 

11

Warrant

Call Option attached to Securities issued by company (ex. Bonds)

12

Common-size analysis of the income statement

Each Line stated as percentage of Revenue 

13

Net profit margin/ Profit margin/ Return on sales

Net Income

/

 Revenue (or sales)

14

Net Profit Margin measures

​Income generated for each dolllar of revenue

*A higher level of net profit margin indicates higher profitability and is thus more desirable*

 

15

 Gross profit =

Revenue minus Cost of Goods Sold

16

Gross Profit margin is calculated as

 Gross Profit

/

Revenue

17

Operating Profit Margin calculated as

Operating Income 

/

Revenue

18

Balance Sheet used to determine 

 Ability to pay near-term Operating Needs,

Meet future Debt Obligations,

 Make distributions to Owners

19

Current Assets are generally maintained for

Operating Purchases

Items expected to be converted into cash (Trades Receivables)

Items Used Up (Office supplies, prepaid expense)

Items Sold (Inventories)

20

The item “trade receivables” or “accounts receivable” would indicate

that a company provides credit to its customers

21

Working Capital equation

Current Asset - Current Liabilities

22

Working Capital tells us

Ability of an entity to meet liabilities as they fall due 

23

Trade Payables, also called Accounts Payable represents

.Unpaid amounts of company's purchases on credit (as of BS date)

Amounts that company owes to vendor for purchase of goods and services

24

Deferred income/ Unearned revenue

Payment received in advance for goods/services 

Recorded as a liability until good/services are delievered

25

Liquidity Ratios

Measuring the company’s ability to meet its short-term obligations

26

solvency ratios

measuring the company’s ability to meet long-term and other obligations

27

Current Liquidity Ratio

Current Asset

/

Current Liabilities 

28

Quick Liquidity Ratio

(Cash + Marketable Securities + Receivables)

/

Current Liabilities 

29

Cash Liquidity Ratio

(Cash + Marketable Securities)

/

Current Liabilities 

30

Debt to Equity Solvency Ratio

Total Debt

/

Total Equity

31

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