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13 Cards in this Set

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  • Back
Price/Earnings Ratio
How quickly will earnings grow in the future?

P/E Ratio = MarketPrice/NetIncome
Underlying Assumptions
Continuity (Going-concern)
Accounting Principles
Historic Cost - Assets to be recorded at historical value of cash-equivalent paid at date of transaction.

Revenue Recognition - Revenues recognized when the earnings process is complete or nearly complete.

Matching - Expenses be recorded when incurred in earning revenue.

Full Disclosure -
Return on Equity
How well has management used the investment by shareholders during the period?

ROE = NetIncome/AvgShareEquity
Material Amounts - Amounts large enough to influence a user's decision.

Conservatism - Care taken not to overstate assets/revenues nor understate liabilities/expenses.
FOB destination
Title changes hand on delivery, and the seller normally pays delivery.
Gross Profit Percentage
By what percentage did sales prices exceed the costs to produce the goods sold?

GPP = GrossProfit/NetSales
Alternative Revenue Recognition Methods
Instalment Method: recognizes revenue on the basis of cash collection after the delivery of goods because (3) collection must be probable.

Percentage of Completion Method: records revenue based on % work completed during the accounting period for matching principle. Required: % and costs can be estimated and firm contract guarantees payment.
Inventory Turnover Ratio
How efficient are inventory management activities?

IT = CGS/AvgInventory
Receivables Turnover Ratio
How effective are credit-granting and collection activities?

RT = NetSales/AvgNetTradeAR
Financial Leverage Ratio
How is management using debt to increase the amount of assets the company employs to earn income?

FL = AvgTotalAssets/AvgShareEquity
Total Asset Turnover Ratio
How effective is management in generating sales from assets?

TAT = Sales/AvgTotalAssets
Net Profit Margin Ratio
How effective is management in generating profit from every dollar of sales?

NPM = NetIncome/NetSales