Chapter 3 Flashcards
Balance Sheet and Financial Disclosures (24 cards)
Balance sheet
Reports the company’s financial position at a point in time
Operating cycle
The period from cash is used for acquiring inventory to that inventory is sold
How are assets listed in the Balance sheet?
From most liquid to least liquid
Cash equivalents
Investment that maturity date is 3 months or less.
Short-term investment
Mature within a year
Management intent
Management can designate investment to be either short term or long term depending on their judgement
Intangible assets
No physical substance but give future value.
What are other names for shareholders equity?
Net assets and Book value
Solvency
Ability to pay long-term debts
Financial flexibility
Ability to alter cash flows to address unexpected economical event
Horizontal analysis
Dividing current years value with the previous year to get a percentage
Vertical analysis
Dividing the subtotals with its total to get a percentage
Current ratio
Current assets÷ Current liabilities
Quick ratio
Quick assets ÷ Current liabilities
Quick assets
Exclude inventory, prepaid expense, and deferred tax assets
Debt-to-equity ratio
Total liabilities ÷ Total owners equity
Interest coverage
Earning before interest and tax÷ interest expense
Earnings before interest and taxes
Net income+ interest expense+ tax expense
Market capitalization
Stock price × shares outstanding
Disclosure notes
Provide more detail and context.
Summary of significant accoutning policies
Details on material accounts
Subsequent event disclosure
After fiscal year end but before financial statements are issued any event that occurs and is relevant is stated
Disclosure of noteworthy events
Includes:
- Related party transactions
- Errors and fraud
- Illegal acts
Best outcome for auditors report
Unqualified
Management discussion and analysis
Ussually before financial statements. Provides managements’ views and opinions on operations, expectations, liquidity and capital resources