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Flashcards in chapter three Deck (28):
1

Generally Accepted Accounting Principles (GAAP)

The practice and procedure guidelines used to prepare and maintain financial records and reports; authorized by the Financial Accounting Standards Board (FASB)

2

Public Company Accounting Oversight Board (PCAOB)

is charged with protecting the interests of investors and furthering the public interest in the preparation of informative, fair, and independent audit reports

3

stockholder's reports

annual report that publicly owner corporations must provide to stockholder; they are required if the company has more than $5 million in assets and 500 or more stockholders

4

the four key financial statements

the income statement, the balance sheet, the statement of stockholder's equity and the statement of cash flows

5

income statement

provides a financial summary of the firms's operating results during a specified period

6

balance sheet

The statement balances the firm’s assets (what it owns) against its financing, which can be either debt (what it owes) or equity (what was provided by owners)

7

ratio analysis

Involves methods of calculating and interpreting financial ratios to analyze and monitor the firm’s performance.

8

cross-sectional analysis

Comparison of different firms’ financial ratios at the same point in time; involves comparing the firm’s ratios with those of other firms in its industry or with industry averages.

9

benchmarking

A type of cross-sectional analysis in which the firm’s ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate.

10

current ratio

dividing current assets by current liabilities

11

quick (acid-test) ration

(current assets-inventory)/current liabilites

12

activity ratios

measures the speed with which various accounts are converted into sales o cash, or inflows or outflows

13

inventory turnover

cost of goods sold/inventory

14

average age of inventory

inventory turnover/365

15

average collection period

accounts receivable/average sales per day(annual sales/365)

16

total assets turnover

sales/total assets

17

debt ration

total liabilites/total assets

18

gross profit margin

Measures the percentage of each sales dollar remaining after the firm has paid for its goods.

19

goodwill

byproduct of an acquisition;the difference between what you paid and what it's actually worth

20

fixed asset turnover

sales/fixed assets

21

debt ratio

debt/total assets

22

debt to equity ratio

total debt/total equity

23

Times interest earned ratio

operating expense/interest expense

24

Return on Assets

Net Income/Total Asset

25

Return on Equity

Net Income/Equity

26

Du Pont Equation

(Net Income/Sales)*(Sales/Assets)*(Assets/Equity)

27

Price to Earnings

(market price)/eps

28

Time-series analysis

evaluates performance over time. Comparison of current to past performance, using ratios, enables analysts to assess the firm’s progress.