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### 56 Cards in this Set

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 Return on Sales Net Income / Sales Return on Equity Net Income / Stockholder's Equity ?? Stockholders' equity = Return on Sales x Asset Turnover x Assets-to-equity ratio Asset Turnover Sales / Total Assets Assets-to-equity Ratio Total Assets / Stockholders' Equity Current Ratio Total Assets / Total Liability Total Assets What is assigned 100% in vertical analysis for the balance sheet None Net Sales What is assigned 100% in vertical analysis for the income statement None 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 None 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 None What is the Quick (Acid-Test) Ratio? (Cash + Securities + Accounts Receivable) – Inventory / Current Liabilities What does the Quick Ratio do? A stringent test of liquidity; Does not include Inventory What is the Accounts Receivable Turnover? Net Credit Sales (or Total Sales) / Average Accounts Receivable Avg Accts Receivable/Avg Daily Sales Average Collection period (Beginning Accts Rec + Ending Accts Rec)/ 2 Avg Accounts Receivable Ratio that gives the number of times accts receivable are collected during the year Accounts Receivable Turnover What does it mean when there is a decline in inventory turnover? Stocking of more goods When is it not a concern if there is a decline in A/R turnover rate? If there was an introduction of a new product line in which the advertising effects were not felt yet None 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 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 Liabilities / Equity Debt to Equity Liabilities / Total Assets Debt to Assets Assets – Liabilities Equity What ratio is the significant measure of solvency? Stockholders’ Equity / Total Liabilities How do you figure the stockholders’ equity? In the balance sheet 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. Net Income + Interest Expense (L-T) / Average Assets Return on Assets (ROA) Net Income + Interest Expense (L-T) / Sales Profit Margin on Assets Sales / Assets Asset Turnover Asset Turnover x Profit Margin Return on Assets (ROA) Profitability x Efficiency x Leverage Return on Equity (ROE) Return on Sales x Asset Turnover x Assets-to-Equity Ratio Return on Equity (ROE) Net Income/Sales x Sales/Assets x Assets/Equity Return on Equity (ROE) None Net Income / Average Equity Return on Equity (ROE) Avg Assets / Avg Equity Financial Leverage Net Income – Pref Div / Net Income + Interest Expense (L-T) Common Earning Leverage How do you convert from a yearly number to a daily number? 365 / yearly number Cost of Goods Sold / Avg Inventory Inventory How do you get an average number? (Beginning of year # + End of year #) / 2 Sales / Avg Fixed Assets (L-T) Fixed Assets 365 / Fixed Assets how often in days there is a turnover in long-term assets None Earnings before Interest Expense / Interest Expense Earnings Coverage Ratio Net Income / Sales Return on Sales Sales / Total Assets Asset Turnover Total Assets / Stockholders’ equity Assets-to-equity ratio 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 From the standpoint of the stockholders of a company the ratio that measures the overall performance of a company would be calculated using what? 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 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