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22 Cards in this Set

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congingent liability
a potential liability that has arisen as a result of a past transaction or event. ultimate outcome is unknown until a future event occurs or fails to occur. It it is probable and estimateable, it should be recorded
current ratio
current assets/current liabilities

how well a company is able to use its current assets to pay its current liabilities

Liquidity
times interest earned ratio
(net income+interest exp+income tax exp)/int exp

the amount of income generated by the company before interest and taxes for each dollar of int exp

Solvency
benefits of owning common stock
1.voting
2.dividends
3.residual claim
par value
an insignificant value per share of capital stock specified in the charter; serves as the basis for legal capital
no-par value stock
capital stock that has no par value specified n the corporate charter
why would a company want to repurchase its stock
1.to signal co. believes its own stock is worth purchasing
2.to obtain shares to reissue as payment for purchases of other co.s
3.shares to reissue to employees
what is it called when co.s issue stock to remind stockholders of accumulating wealth?
does par value change?
how do you record it?
small stock dividend, par value does not change

dr RE market price
cr Com Stock par value
cr add. paid in cap diff.
issueing stock to reduce market price per share without a change in par value
large stock dividend

dr RE par value
cr Com Stock par value
stock issued to reduce market p/s with a change in par value
stock split

no journal entry, change par value and # of shares authorized/outstanding
preferred stock
1.no voting rights
2.less risky, paid dividends first and first at liquidation
3.fixed dividend rate
cumulative unpaid dividend amounts
dividends in arrears
earnings per share
net income/ave # of com shares outstanding

amount of income generated for each share of com stock

Profitability
return on equty
net income/ave stockholders equity

profitability

takes cost of stock into consideration
what are cash equivalents
highly liquid investments with original maturities of less than three months
investing activies on cash flow statement
payments and proceeds for/from fixed assets and investments
cash flows from financing activities
cah proceeds from issuance of debt and common stock
cash prinicipal payments on debt, repurchase of stock, dividends
(interest is operating cash flow)
capital acquisitions ratio
net cash flow from op. activies/cash paid for PPE

the portion of PPE financed from op. activities without need for financing

solvency
cash coverage ratio
cash flow from op. activities +interest paid+income taxes paid/interest paid

amount of cash generated for each dollar of interest paid

Solvency
quality of income ratio
net cash flow from op. activities/net income

portion of income generated in cash

high indicate likelihood that revenues being realized in cash and that expenses are associated with cash outflows

profitability
future value
PV(1+interest rate)^n
present value
FV/(1+interest rate)^n