Chapter 1 - Analyzing Financial Statements Flashcards Preview

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Flashcards in Chapter 1 - Analyzing Financial Statements Deck (22):
1

What is compiled in accordance with generally accepted accounting principles (GAAP)?

Financial Statements

2

What does GAAP stand for?

Generally Accepted Accounting Principles

3

What is a collection of rules and procedures which are overseen by authorities such as the Financial Accounting Standards Board (FASB) and Exchange Commission (EC).?

GAAP

4

What are the prevalent accounting principles?

Accounting period
Conservatism
Consistency
Matching
Understandability
Reliability

5

What are 4 required statements?

Balance Sheet
Income Statement
Statement of Owners' Equity
Statement of Cash Flows

6

The statement of financial position describing at a point in time the assets, liabilities, and owner's equity of the enterprise

Balance Sheet

7

What shows all sources of revenues and expenses incurred for the period in question

Income Statement

8

What reports investments by stockholders into the firm and distributions (dividends) paid to those stockholders?

Statement of Owner's Equity

9

What reveals a company's sources and uses of cash and generally is used to isolate the changes in balance sheets from period to period?

Statement of Cash Flows

10

What is the most frequently employed tool for analyzing financial statements?

Ratio Analysis

11

What are the three types of financial statement ratios?

Operating Performance Ratios
Liquidity Ratios
Financial Strength Ratios

12

What indicates how well a company is converting its resources into results - sales, income or the like?

Operating Performance Ratios

13

What presents the short term financial stability of an enterprise, focusing on current assets and current liabilities?

Liquidity Ratios

14

What indicates the capitalization of a company (ex: its long term debt and equity)?

Financial Strength Ratios

15

TRUE or FALSE: A company's financial reports can be compared with industry averages or against its own historical performance.

TRUE

16

What is the equation for the balance sheet?

Assets = Liabilities + Owners' Equity

17

What is the equation for Profit Margin?

Profit Margin = Net Income / Net Sales

18

What is the equation for Return on Assets (ROA)?

ROA = Profit Margin x Asset Turnover OR

ROA = Net Income/Net Sales x Net Sales/Average Total Assets

19

What is the equation for Return on Equity?

Return on Equity = Net Income Available to Shareholders/Average Owners' Equity

20

What is the equation for Earnings Per Share?

EPS = Net Income Available to Shareholders/Average Common Shares Outstanding

21

What is the equation for Price Earnings Ratio (P/E)?

Stock Price/EPS

22

What is the equation for Payout Ratio?

Payout Ratio = Dividends/Net Income