Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/67

Click to flip

67 Cards in this Set

  • Front
  • Back
  • 3rd side (hint)
What is Liquidity ?
Company’s ability to convert noncash assets into cash or to obtain cash in order to meet current liabilities; Short-term (1 yr or less); Essential to carrying out of business acitivity
What is the Quick (Acid-Test) Ratio?
(Cash + Securities + Accounts Receivable) – Inventory / Current Liabilities
shows how quick you can generate cash; 1 or more is good
What is the Accounts Receivable Turnover?
Net Credit Sales (or Total Sales) / Average Accounts Receivable
number of sales/collection cycles completed during the year
Average Collection period
Avg Accts Receivable/Avg Daily Sales
Avg # of days that elapse between sale and cash collection
What do you do with the collection period?
This indicates the length of time needed to buy
sell
What is the operating cycle?
the number of days it takes to convert inventory into cash
What is solvency?
the entity’s ability to meet its long-term obligations as they become due
Can you cover your debt? (long term)
Debt to Equity
Liabilities / Equity
If # < 1- owned more by owners (equity) ; If # > 1- owned more by banks (creditors)
Debt to Assets
Liabilities / Total Assets
If # < 1, I OWN more than I owe and If # > 1, I OWE more than I owe
Equity
Assets – Liabilities
What ratio is the significant measure of solvency?
Stockholders’ Equity / Total Liabilities
How do you figure the stockholders’ equity?
In the balance sheet - take the number of shares and multiply them by the par value price + Retained earnings
What is the formula for the operating cycle?
Number of days inventory is held + Number of days receivables are held
Why is the Stockholders’ equity compared to total liabilities important?
this is a significant measure of solvency since a high degree of debt in the capital structure may make it difficult for the company to meet interest charges and principal at maturity.
What do you get if you have a high debt position?
there is a high degree of debt in the capital structure may make it difficult for the company to meet interest charges and principal at maturity – AND the risk of running out of cash – AND – Less financial flexibility in the sense that it will be difficult to get loans in a crunch.
Return on Assets (ROA)
Net Income + Interest Expense (L-T) / Average Assets
doesn’t mean anything except when compared to a benchmark- is a Profitability ratio
Profit Margin on Assets
Net Income + Interest Expense (L-T) / Sales
Profitability Ratio; for every dollar sold
Asset Turnover
Sales / Assets
Profitability
Return on Assets (ROA)
Asset Turnover x Profit Margin
DuPont Framework
Return on Equity (ROE)
Net Income/Sales x Sales/Assets x Assets/Equity
Return on Equity (ROE)
Net Income / Average Stockholders' Equity
According to stockholders, this measures the overall performance of a company.// It is the number of pennies earned during the year on each dollar invested
Financial Leverage
Avg Assets / Avg Equity
how much of common equity is used to purchase assets – is bad if less than 1; on avg
Common Earning Leverage
Net Income – Pref Div / Net Income + Interest Expense (L-T)
How do you convert from a yearly number to a daily number?
365 / yearly number
How do you get an average number?
(Beginning of year # + End of year #) / 2
Fixed Assets .Sales/Avg Fixed Assets (L-T)
how many times per year that long-term assets are turned over
how often in days there is a turnover in long-term assets
365 / Fixed Assets
Earnings Coverage Ratio
Earnings before Interest Expense / Interest Expense
Return on Sales
Net Income/Sales
number of pennies earned during the year on each dollar of sales
Asset Turnover
Sales/Total Assets
number of dollars of sales during the year generated by each dollar of assets
Assets-to-equity ratio
Total Assets / Stockholders’ equity
number of dollars of assets acquired for each dollar of funds invested by stockholders
What is the purpose of the Form 20-F?
a form that explains in detail the differences between a company’s net income computed applying its home country’s accounting principles and net income computed applying U.S. GAAP.
Rauh Corp had a current ratio of 2.0 at the end of 2007. Current assets and current liabilities increased by equal amounts during 2008. The effects on net working capital and on the current ratio respectively were:
No Effect
No Effect - Increase – Decrease
From the standpoint of the stockholders of a company the ratio that measures the overall performance of a company would be calculated using what?
Average stockholders’ equity and Net Income
Which of the following is NOT a component of the DuPont Framework?
Assets to Debt
Return on Sales;
Asset turnover;
Assets to debt;
Assets to equity
What is assigned 100% in vertical analysis for the balance sheet
Total assets
What is assigned 100% in vertical analysis for the income statement
Net Sales
What is the Working Capital formula?
Current Assets – Current Liabilities
What is Working capital used for?
Safety cushion to creditors; a greater balance is required when the entity has difficulty borrowing on short notice
What is the Current Ratio?
Current Assets / Current Liabilities
What Current Ratio used for?
Used to measure the ability of an enterprise to meet its current liabilities out of current assets
What does the Quick Ratio do?
A stringent test of liquidity; Does not include Inventory
What is this ratio for? 365 days / Turnover rate
Collection period: The number of days inventory is held
What do you do with the collection period?
This indicates the length of time needed to buy
sell
What is the operating cycle?
the number of days it takes to convert inventory into cash
What is solvency?
the entity’s ability to meet its long-term obligations as they become due
Can you cover your debt? (long term)
Debt to Assets
Liabilities / Total Assets
If # < 1
Equity
Assets – Liabilities
What ratio is the significant measure of solvency?
Stockholders’ Equity / Total Liabilities
What is the formula for the operating cycle?
Number of days inventory is held + Number of days receivables are held
Why is the Stockholders’ equity compared to total liabilities important?
this is a significant measure of solvency since a high degree of debt in the capital structure may make it difficult for the company to meet interest charges and principal at maturity.
What do you get if you have a high debt position?
there is a high degree of debt in the capital structure may make it difficult for the company to meet interest charges and principal at maturity – AND the risk of running out of cash – AND – Less financial flexibility in the sense that it will be difficult to get loans in a crunch.
Return on Assets (ROA)
Net Income + Interest Expense (L-T) / Average Assets
doesn’t mean anything except when compared to a benchmark- is a Profitability ratio
Profit Margin on Assets
Net Income + Interest Expense (L-T) / Sales
Profitability Ratio; for every dollar sold
Asset Turnover
Sales / Assets
Profitability
Return on Assets (ROA)
Asset Turnover x Profit Margin
DuPont Framework
Financial Leverage
Avg Assets / Avg Equity
how much of common equity is used to purchase assets – is bad if less than 1; on avg
Common Earning Leverage
Net Income – Preferred Dividends / Net Income + Interest Expense (L-T)
How do you convert from a yearly number to a daily number?
365 / yearly number
Inventory Turnover Ratio
Cost of Goods Sold / Avg Inventory
The inventory turnover ratio measures the number of times a company sells its inventory during the year.//
A high inventory turnover ratio indicated that the product is selling well.//
The inventory turnover ratio should be done by inventory categories or by individual product.
How do you get an average number?
(Beginning of year # + End of year #) / 2
Fixed Assets .Sales/Avg Fixed Assets (L-T)
how many times per year that long-term assets are turned over
how often in days there is a turnover in long-term assets
365 / Fixed Assets
Earnings Coverage Ratio
Earnings before Interest Expense / Interest Expense
Return on Sales
Net Income/Sales
number of pennies earned during the year on each dollar of sales
Return on Equity (ROE)
Profitability x Efficiency x Leverage
Return on Equity (ROE)
Return on Sales x Asset Turnover x Assets-to-Equity Ratio