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78 Cards in this Set

  • Front
  • Back
Merchandising activity
Wholesalers and Retailers
Merchandising Activity Equation
Net Sales
- Cost of Goods sold
Gross Profit (GP)
- Operating Expenses
Operating Profit
- Interest Expense
Income taxes
Net Profit
Operating Expenses
salaries, wages, rent
Operating Cycle
How long it takes a company to complete the cash cycle
Cash cycle
90 Days- total cycle


Accts. Inventory
Perpetual Cycle
(ex. jewelry store, auto dealership, high-end fashion)
- Sell few items but all are high end
- negotiate prices within limits
- have to take physical inventory, don't know if people are stealing, etc.
- used at END of accounting period
(ex. oil delivery business)
- use formula to figure out costs at end of accounting period
*physical inventory to find beg. and end inventory
(silo example)
Periodic Formula
Beginning inventory
+ Purchases
Goods Available
- Ending Inventory
= Cost of Goods Sold
Credit Terms
-accelerate Cash Flow
3/10, net 30
you have to pay within 30 days but if you pay in 10 you get a 3% discount
Purpose of credit Terms
to acclerate cash flow & operating cycle
Sales Formula
Gross Sales(# of units sold)
- Returns & Allowances
- Discounts (15 % off, etc.)
= Net Sales
Transportation cost
cost it takes retailer to get inventory to your place of business (ex: UPS)
Delivery Costs
become an operating expense- get goods to customer for their benefit, paid for by business
Sales per sq. foot
sales / sq. footage of store

*measure of efficiency
(ex: Auntie Annes)
Same Store Sales
how the same stores that are already open doing before you open new ones.
*How is underlying structure doing?
short term or current obligations
- vendors
- can u pay current liabilities?
-Long Term obligations
-whoever lent you money (banks, bondholders, etc.)
Liquidity groups
Working Capital
Current Ratio
Quick Ratio
Working Capital
current assets- current liabilities

*higher # is better
Current Ratio
Current Assets/ current liabilities

2:1 or higher is good
Quick Ratio
quick assets / current liabilities

1:1 ratio is good
Quick Assets
cash & accts. recievable
Gray Area
Liquidity or Profitability
Accounts Recievable Turnover
(Operating cycle diagram)
Credit Sales / Average X times
(ex. 365 / air turnover = 36.5 days)
2.0 Average= more accurate
Inventory Turnover
(operating cycle diagram)
how fast to sell inventory

inventory = cost of goods sold/ average inventory

(ex: days to sell inventory 365/20= 18 days)
Operating Cycle
A/R Turnover + Inventory Turnover
(ex: add days 36.5 + 18 = 54.5 days)
Areas Under Gray Area
Accounts Recievable Turnover
Inventory Turnover
Operating Cycle
Solvency Group
Debt Ratio
Debt Ratio
total liabilites / total assets

-most companies want a lower debt ratio
-larger companies have higher cashflows, timing and payment guarenteed so they can have higher debt ratios
total assets
current assets + fixed assets
profit margins, operating profitability, gross profit, net profit & their margins
Profitability Groups
Return on investment
Earnings Per Share
Return on Investment
Return on Assets
Return on Equity
Return on Assets
operating concept
uses (operating profit/ average total) investment
Return on Equity
measure of stockholders return
(net profit/ average stockholder's equity)
Earnings Per Share
net income/ outstanding shares of common stock (average)
Market Measures Groups
Price- Earnings Ratio
PEG Ratio
Dividend Yield
Book Value Per Share
Price-earnings Ratio
Market Price of Stock / earnings per share

(ex:$20/$1 = 20x earnings)
PEG Ratio
Price Earnings/ Growth Rate

(20/20 = 1 --better if less)
Dividend Yield
Dividend per share/ Market price per share
Book Value per Share
Stockholder's equity/ # of shares
current market price/ share
Earnings Per Share

(Best measure of the potential of future earnings)
ex: 10/10 =1.0
10/5 = 2.0
lower peg ratio means stock has better valuefor future growth
Book Value is
misleading because all you are interested in are future earnings not book value
- you dont want company to be liquidated, you want them to do well
Most important activity
Operating Activities (direct method)
3 types of cash
1)Treasury bills (90 day max. issued every week)
2)Money Market Funds (pay you like interest)
3)Commercial paper(issued by companies)
Statement of Cash Flows
provide info. on receipts -when cash was recieved and dispersed during an accounting period (to external parties)
Cash =
Cash + Cash Equivalents

short term
highly liquid
stable value
3 types of activities
OA Reciepts
1)Cash recieved from customers
2) Dividends & Interest Recieived
OA Disbursements
1) Cash paid to suppliers& employees
2) Interest Paid
3) Income Taxes
FA Reciepts
1) Short Term or long term borrowings
2) Issuance of Capital Stock
FA Disbursments
1) Repayment of debt
2) Payment of dividends
IA Receipts
1) Sale of Investments
2) Collection of loans
3) Sales of Plant Assets
IA Disbursements
1) Purchase of Investments
2) Lending of Cash
3) Purchase of Plant Assets
Invented by FASB
Indirect Method
Indirect Method
want to see change from net cash flow to net income
Direct and Indirect methoda
both only for OA!
ID- Reconciliation of Net Cash Flow to Net Income
depriciation and other non-cash expenses
Id- Short Term
TIMING differences between the "cash basis" and the "accrual basis" of acctg.
ID- Non-operating gains and losses
included in net income, are attributable to Investing or Financing activities not OA
ID- Depreciation on
Income Statement but not Cash flows stmt.
- no receipt or payment of cash
ID- difference in
when disbursement shows up in cash flow or when its in income statement
ID- in net income because
doesnt happen everyday
FASB Method
-permit both Direct and ID (get same answer)
- Reccomend Direct
If yo do Direct method
you have to also do ID
- need to see 3 activities layed out
-Most companies do ID because its less work
Both Direct and Indirect
Net Cash Flow is the SAME the only difference is FORMAT!
St'mt of Cash Flows, Income Statement & Balance Sheet
Historical in Nature
Cash Budget Forecast
Used to manage cash & Cash Flows, financing plans. How much $ they need
(ex: $ for advertising)
(Chemical Research)
Net Cash Flow From Operating Activities
Plant Acquisition
- Dividends
= Free/ discretionary cash flow

*Higher # = better, EVERYONE likes this
wholesalers & Retailers - acquire goods for resale
3 Ways to Permanently improve Cash Flow
Defer Taxes
Peak Pricing
Effective Product Mix
Defer Taxes
-don't pay taxes until you take out and spend money
(ex: beach house swap no taxes)
(ex: Rockerfeller)
Peak Pricing
(ex: beach house rent is more during peak season)

(ex: Restaurants peak hrs. higher prices)
Effective Product Mix
(ex: Macdonalds - ask if you want fries and drink - profit margins)
(shoe store - you need polish)
- offer complimentary products to increase sales