Module 2 Flashcards
(43 cards)
GAAP
Generally Accepted Accounting Principals
Stockholders Report
summarizes and documents the firm’s financial activities during the past year
Income Statement
financial summary of the firm’s operations during a specified period
Balance Sheet
a summary statement of the firm’s financial position at a given time
balances the firm’s assets (what it owns) against its financing, which can be either debt (what it owes) or equity (what owners provided)
Current Assets/Liabilities
convert into cash or pay within one year
Long-Term Debt
payment is not due within one year
Income Statement Order
Sales Revenue - COGS = Gross Profit
Gross Profit - Operating Expenses = = Operating Profit
Operating Profit - (Interest + Taxes) = Net Income
Net Income - Preferred Stock Dividend = Earnings Available for Common Stockholders
Retained Earnings
cumulative total of all earnings, net of dividends, that the company has retained and reinvested; funds already reinvested in the business
Statement of Retained Earnings
Retained Earnings + Net Income - Dividends Paid = Retained Earnings
Statement of Cash Flows
summary of the cash flows over the period; provides insight into the operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities
Ratio Analysis
methods of calculating and interpreting financial ratios to analyze and monitor the firm’s performance
Cross-Sectional Analysis
comparison of different firms’ financial ratios at the same point in time
Time-Series Analysis
evaluates performance over time
5 Types of Financial Ratios
liquidity, activity, debt, profitability, and market ratios
Liquidity
ability to satisfy its short-term obligations as they come due
Current Ratio
compares a firm’s current assets to its current liabilities
Quick (Acid-Test) Ratio
similar to the current ratio except that it excludes inventory, which is generally the least liquid current asset
Activity Ratios
measure the speed with which assets and liabilities are converted into sales or cash; assess the efficiency with which a firm manages its total assets
Inventory Turnover Ratio
judge the effectiveness of inventory management practices
represents the number of times per year the company sells its inventory
Average Age of Inventory
measures how many days of inventory the firm has on hand
Average Collection Period
evaluates credit and collection policies; meaningful only in relation to the firm’s credit terms
Average Payment Period
evaluates the amount of time it takes the firm to pay suppliers
Total Asset Turnover
measure of the efficiency with which the firm uses its assets to generate sales
indicates how many dollars of sales produced for each dollar of assets that it has invested; higher is more efficient
Financial Leverage
the degree to which a firm uses debt financing, or other types of fixed-cost financing (preferred stock)