Fin 352 Ch. 3

Front 1

The practice and procedure guidelines used to prepare and maintain financial records and reports; authorized by the Financial Accounting Standards Board

Back 1

GAAP

Front 2

The accounting profession's rule-setting body, which authorizes generally accepted accounting principles

Back 2

FASB

Front 3

A not-for-profit corporation established by the Sarbanes-Oxley Act of 2002 to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports

Back 3

Public Company Accounting Oversight Board (PCAOB)

Front 4

Annual report that publicly owned corporations must provide to stockholders; it summarizes and documents the firm's financial activities during the past year

Back 4

Stockholders' Report

Front 5

Provides a financial summary of the firm's operating results during a specified period

Back 5

Income Statement

Front 6

The dollar amount of cash distributed during the period on behalf of each outstanding share of common stock

Back 6

Dividend Per Share

Front 7

Summary statement of the firm's financial position at a given point in time

Back 7

Balance Sheet

Front 8

Short-term assets, expected to be converted into cash within 1 year or less

Back 8

Current Assets

Front 9

Short-term liabilities, expected to be paid within 1 year or less

Back 9

Current Liabilities

Front 10

Debt for which payments is not due in the current year

Back 10

Long-term Debt

Front 11

The amount of proceeds in excess of the par value received from the original sale of common stock

Back 11

Paid-in Capital in Excess of Par

Front 12

The cumulative total of all earnings, net of dividends, that have been retained and reinvested in the firm since its inception

Back 12

Retained Earnings

Front 13

Shows all equity account transactions that occurred during a given year

Back 13

Statement of Stockholders' Equity

Front 14

Reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and the end of that year. An abbreviated form of the statement of stockholders' equity

Back 14

Statement of Retained Earnings

Front 15

Provides a summary of the firm's operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period

Back 15

Statement of Cash Flows

Front 16

Explanatory notes keyed to relevant accounts in the statements; they provide detailed information on the accounting policies, procedures, calculations, transactions underlying entries in the financial statements

Back 16

Notes to the Financial Statements

Front 17

Mandates that US based comanies translate their foreign-currency-denominated assets and liabilities into dollars, for consolidation with the parents company's financial statements. This is done by using the current rate (translation) method

Back 17

Financial Accounting Standards Board Standard No. 52

Front 18

Technique used by US-based companies to translate their foreign-currency-denominated assets and liabilities into dollars, for consolidation with the parent company's financial statements, using the year-end (current) exchange rate

Back 18

Current Rate Method

Front 19

Involves methods of calculating and interpreting financial ratios to analyze and monitor the firm's performance

Back 19

Ratio Analysis

Front 20

Comparison of different firms' financial ratios at the same point in time; involves comparing the firm's ratios to those of other firms in its industry or to industry averages

Back 20

Cross-sectional Analysis

Front 21

A type of cross-sectional analysis in which the firm's ratio values are compared to those of a key competitor or group of competitors that it wishes to emulate

Back 21

Benchmarking

Front 22

Evolution of the firm's financial performance over time using financial ratio analysis

Back 22

Time-series Analysis

Front 23

A firm's ability to satisfy its short-term obligations as they come due

Back 23

Liquidity

Front 24

A measure of liquidity calculated by dividing the firm's current assets by its current liabilities

Back 24

Current Ratio

Front 25

A measure of liquidity calculated by dividing the firm's current assets minus inventory by its current liabilities

Back 25

Quick (acid-test) Ratio

Front 26

Measure the speed with which various accounts are converted into sales or cash--inflows or outflows

Back 26

Activity Ratios

Front 27

Measures the activity, or liquidity, of a firm's inventory

Back 27

Inventory Turnover

Front 28

Average number of days' sales in inventory

Back 28

Average Age of Inventory

Front 29

The average amount of time needed to collect accounts receivable

Back 29

Average Collection Period

Front 30

The average amount of time needed to pay accounts payable

Back 30

Average Payment Period

Front 31

Indicated the efficiency with which the firm uses its assets to generate sales

Back 31

Total Asset Turnover

Front 32

The magnification of risk and return through the use of fixed-cost financing, such as debt and preferred stock

Back 32

Financial Leverage

Front 33

Measures the amount of debt relative to other significant balance sheet amounts

Back 33

Degree of Indebtedness

Front 34

The ability of a firm to make the payments required on a scheduled basis over the life of a debt

Back 34

Ability to Service Debts

Front 35

Ratios that measure the firm's ability to pay certain fixed charges

Back 35

Coverage Ratios

Front 36

Measures the proportion of total assets financed by the firm's creditors

Back 36

Debt Ratio

Front 37

Measures the firm's ability to make contractual interest payments; sometimes called the interest coverage ratio

Back 37

Times Interest Earned Ratio

Front 38

Measures the firm's ability to meet all fixed-payment obligations

Back 38

Fixed-payment Coverage Ratio

Front 39

An income statement in which each item is expressed as a percentage of sales

Back 39

Common-size Income Statement

Front 40

Measures the percentage of each sales dollar remaining after the firm has paid for its goods

Back 40

Gross Profit Margin

Front 41

Measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted; the "pure profits" earned on each sales dollar

Back 41

Operating Profit Margin

Front 42

Measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted

Back 42

Net Profit Margin

Front 43

Measures the overall effectiveness of management in generating profits with its available assets; also called the return on investment

Back 43

Return on Total Assets

Front 44

Measures the return earned on the common stockholders' investment in the firm

Back 44

Return on Common Equity

Front 45

Relate a firm's market value, as measured by its current share price, to certain accounting values

Back 45

Market Ratios

Front 46

Measures the amount that investors are willing to pay for each dollar of a firm's earnings; the higher the P/E ratio, the greater the investor confidence

Back 46

Price/Earnings Ratio

Front 47

Provides an assessment of how investors view the firm's performance. Firms expected to earn high returns relative to their risk typically sell at higher M/B multiples

Back 47

Market/Book Ratio

Front 48

System used to dissect the firm's financial statements and to assess its financial condition

Back 48

DuPont System of Analysis

Front 49

Multiplies the firm's net profit margin by its total asset turnover to calculate the firm's return on total assets

Back 49

DuPont Formula

Front 50

Relates the firm's return on total assets to its return on common equity using the financial leverage multiplier

Back 50

Modified DuPont Formula

Front 51

The ratio of the firm's total assets to its common stock equity

Back 51

Financial Leverage Multiplier