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13 Cards in this Set
- Front
- Back
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Price/Earnings Ratio
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How quickly will earnings grow in the future?
P/E Ratio = MarketPrice/NetIncome |
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Underlying Assumptions
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Seperate-entity
Periodicity Unit-of-measure Continuity (Going-concern) |
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Accounting Principles
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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 - |
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Return on Equity
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How well has management used the investment by shareholders during the period?
ROE = NetIncome/AvgShareEquity |
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Constraints
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Material Amounts - Amounts large enough to influence a user's decision.
Conservatism - Care taken not to overstate assets/revenues nor understate liabilities/expenses. |
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FOB destination
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Title changes hand on delivery, and the seller normally pays delivery.
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Gross Profit Percentage
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By what percentage did sales prices exceed the costs to produce the goods sold?
GPP = GrossProfit/NetSales |
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Alternative Revenue Recognition Methods
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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. |
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Inventory Turnover Ratio
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How efficient are inventory management activities?
IT = CGS/AvgInventory |
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Receivables Turnover Ratio
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How effective are credit-granting and collection activities?
RT = NetSales/AvgNetTradeAR |
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Financial Leverage Ratio
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How is management using debt to increase the amount of assets the company employs to earn income?
FL = AvgTotalAssets/AvgShareEquity |
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Total Asset Turnover Ratio
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How effective is management in generating sales from assets?
TAT = Sales/AvgTotalAssets |
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Net Profit Margin Ratio
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How effective is management in generating profit from every dollar of sales?
NPM = NetIncome/NetSales |
