Flashcards in Chapter 14 Part 4 Deck (20):
Approximately $300 million up to $2 billion. These are usually new companies with more volatility, but more growth potential as well.
From $50 million up to $300 million. These companies are generally considered suitable only for speculative investors
liquidity ratios indicate a company's ability to
meet its current liabilities as well as convert current assets into cash
leverage ratio measures the
long-term solvency of the firm
Working capital is the measurement of
a company's ability to pay its current liabilities. If the working capital is positive, it means that the company's current assets are sufficient to cover its current liabilities. If the working capital is negative, the company may have difficulty repaying liabilities due in the short term.
Working Capital =
Current Assets - Current Liabilities
Current ratio is
another measurement of liquidity. However, it measures the ratio between current assets and current liabilities. Analysts believe that you should compare the current ratio of a company against its industry peers. Different industry groups have different capital and liquidity needs. However, the company's total assets include its inventory, which is the least liquid of the current assets. In some cases, what appears to be a safe current ratio may be distorted by a high amount of inventory comprised of goods that are not easily liquidated. Companies with small inventories and accounts receivable that are easily collected may be able to operate with a low current ratio.
Current ratio =
Current Assets/Current Liabilities
The quick ratio (asset test ratio) is a
more stringent measurement of a company's liquidity than its current ratio. In this calculation, the company's inventory is subtracted from its current assets to arrive at its quick assets. Quick assets are then divided by current liabilities to find the quick ratio. A quick ratio of more than 1 to 1 is generally considered safe because it indicates that the company would be able to pay its current liabilities for a short period without having to access any additional revenue from sales
quick ratio (asset test ratio) =
(total current assets - inventory)/total current liabilities
The debt-to-equity ratio measures the
relationship between equity and debt securities in the corporation's capital structure--the amount of debt the company has taken on to finance its operations compared to the amount it has raised through issuing stock. A company with more debt than equity outstanding is considered leveraged. A high debt-to-equity ratio may be a sign of financial weakness. the company's ability to grow and operate may be negatively affected by the need to service its debt. In the worst case scenario, the company may be forced into bankruptcy.
Debt-to-Equity Ratio =
(Bonds+ Preferred Stock)/(Common Stock at Par+ Capital Surplus+ Retained Earnings)
The income statement (also called the profit and loss statement) shows a company's performance during
a specified period
The earnings per share (EPS) is a measurement of
a company's profitability as it is allocated to each outstanding common share. The following formula is used to calculate the earnings per share. Keep in mind, information from both the balance sheet and income statement will be required.
Earnings per Share =
(Net Income - Preferred Dividends)/Number of Outstanding Shares
The price-to-earnings ratio measures the
price of a stock in relation to its earnings. It indicates how much investors are willing to pay for each dollar the company earns
Price/Earnings Ratio =
Current Market Price/Earnings Per Share
A publicly traded corporation is required to register with the SEC if it has total assets of more than
$10,000,000 and more than 500 shareholders, or if its securities trade on a national exchange or Nasdaq. These securities are referred to as Section 12 securities since that is the section of the Act that requires the issuer to register. This registration is in addition to the registration of the issuer's securities under the Securities Act of 1933 when they are first offered to the public.
The following reports are required to be filed with the SEC and are generally made available to the public
Form 8-K, Form 10-Q, Form 10-K, Proxy Statements, Schedule 13D, Schedule 13G, Schedule 13F