financial statements and ratios

Question 1

used to report financial status at a certain point

Answer 1

balance sheets

Question 2

used to report on financial activity, or flow, between two points in time.

Answer 2

income statements

Question 3

What a company owes and owns at a given point in time

Answer 3

assets

Question 4

amount owed to creditors

Answer 4

liability

Question 5

owners equity

Answer 5

owners investment

Question 6

assets= liability + owners equity

Answer 6

balance sheet

Question 7

allocation of the purchase costs of fixed assets over a number of years
portion of the original cost of the asset that has been “used up” during a period
Has a significant effect on the net income of the org.

Answer 7

depreciation

Question 8

contra asset account.

Answer 8

depreciation

Question 9

cash or items that should be converted into cash or used up within  \_\_\_\_\_\_\_.
Cash
Accounts receivable
Inventory
Prepaid expenses (ex. Insurance)

Answer 9

current assets

Question 10

Land, buildings, vehicles, and equipment

Answer 10

fixed assets

Question 11

obligations owed to creditors, such as bank or finance company

Answer 11

notes payable

Question 12

obligation owed for inventory or services purchased on credit

Answer 12

accounts payable

Question 13

obligations have been incurred but not yet paid..”(wages payable, interest payable, tax payable)

Answer 13

accruals payable

Question 14

Statement of profit and loss

Answer 14

income statement

Question 15

measure the inflow of new assets to the org.

Answer 15

revenues

Question 16

outflow or using up of assets

Answer 16

expenses

Question 17

What are the benefits of using financial ratios rather than absolute dollar amount?

Answer 17

Possible to compare a company to different companies even with different company size (industry standard)
Easier to see trends throughout years

Question 18

Measure firm’s ability to meet short-term obligations

Answer 18

liquidity measures

Question 19

Measure the degree of financial risk to which your firm is exposed
Total debt/total assets
% of the firm financed by creditors
Banks don’t like to see this go over .50

Answer 19

debt ratio

Question 20

Interest expense/ net operating income

Answer 20

times interest earned

Question 21

A company’s ability to meet its debt obligations: calculated by taking a company’s earnings before interest and taxes and dividing it by the total interest payable on debt

Answer 21

times interest earned

Question 22

amount of each sales dollar remaining after cost of sales has been deducted. -> critical measure of cost control

Answer 22

gross profit margin

Question 23

the amount of each sales dollar remaining after all normal costs of operations have been deducted.

Answer 23

operating profit margin

Question 24

percentage of each sales dollar remaining after all costs of operations including tax/interest have been deducted from sales.

Answer 24

net profit margin

Question 25

(Gain from investment- cost of investment) / cost of investment Represents the amount of income earned for every $ invested Single best measure of financial performance Can be compared to industry average

Answer 25

ROI