Chapter 14 Flashcards
(26 cards)
the portion of an organization’s revenue that is left over after the organization has paid the direct costs (wages, components, materials, etc.) associated with its products or service
Gross Profit Margin
the portion of an organization’s revenue that is left after all operating expenses associated with its products or services have been paid
Profitability Margin
3 statements managers rely on to analyze current financial situation
○ Statement of comprehensive income
○ Statement of changes in financial position
○ Statement of cash flows
represent the flow of money within the organization that is directly related to day-to-day business dealings (revenue and expenses)
Operational Transactions
are the decisions managers make with respect to investment and divestment of capital assets (buildings, equipment, business subsidiaries) that may be needed, or are no longer needed, as part of the organization’s business system
Capital Asset Transactions
refers to a longer-term assessment of the financial stability of the organization
solvency
refers to how effective the organization is in deploying its resources and managing its operational processes in the delivery of goods and/or services to the marketplace
efficiency
is a general term that relates to an organization’s cash reserves and borrowing power
Capacity
the financial statement that responds to the question of whether our business is earning a profit as a result of the sales we have made versus the expenses we have incurred in developing our goods and services and delivering them to the marketplace
Statement of Comprehensive Income (Income Statement)
refers to a financial statement that provides managers with an understanding of the resources the organization has at its disposal at a given point in time, and the financial obligations the business has incurred as a result of purchasing these resources
○ Must adhere to the accounting equation: assets = liabilities + owners’ equity
Statement of Changes in Financial Position (Balance Sheet)
refers to the resources that the organization has at its disposal and that it can utilize in the generation of business activities, and ultimately profit
assets
the debts or financial obligations that an organization has incurred as a result of conducting its business
liabilities
represents the value of capital received from the owners of the business that is used to fund the start-up or ongoing operations of the business, as well as reflecting the value of the organization’s retained earnings
= owners’ capital invested + retained earnings
Owner’s Equity
represent the value of prior earnings that an organization had retained for future investment in business
Retained earnings
provides managers with a full understanding of the total movement of cash (from all sources) into and out of the business; great indicator of liquidity
Statement of Cash Flows
refers to the net movement in the cash position of the organization based on operating, financing, and investing activities
Net Change in Cash Position
refers to adjustments to net income to reflect the actual cash provided by operating activities
Cash from Operational Activities
refers to sources of cash flowing into the organization from non-operating activities
Cash from Financing Activities
refers to uses of cash flowing out of the organizations from non-operating activities
Cash from Investing Activities
seek to define the relationship between critical components of information found on the financial statements
Ratio Analysis
analyze the financial obligations that an organization has against its financial resources in order to determine whether the organization possesses sufficient capital to meet its upcoming needs
Solvency and Liquidity Ratios
current ratio
quick ratio
focus on the amount of debt an organization has taken on, the relationship of this debt value against its total asset base, and the ability of the organization to meet its debt servicing (payments) obligations
debt ratios
i.e. debt to asset
debt to equity
time interest earned
assist mangers in assessing the efficiency and effectiveness of key components of an organization’s operations
Activity Ratios
i.e. days receivable, inventory turnover
focus on assessing the amount of income the organization has earned in comparison to the operating activity that has taken place and the assets that have been used to support its generation
profitability ratios i.e. ROS ROA ROE EPS
