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24 Cards in this Set
- Front
- Back
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What is another name for APIC?
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Capital Surplus
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What do dividends do to working capital?
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Declaring cash dividends: Decrease
Paying cash dividends: Increase |
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What is Book Value / Share? What is a more conservative form of book value?
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SE / shares out
Includes intangible assets and goodwill More conservative number is tangible book value which is equal to TA - TL less intangibles and goodwill |
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What industry uses Price / Book the most?
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Financial Institutions
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What are some examples of aggressive accounting?
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Reporting lower expenses
Capitalizing verse expensing costs Operating lease vs capital lease Overvaluing assets or underestimating liabilities Use of discount rates in calculating pension fund liabilities -Use of high discount is aggressive and low discount is conservative |
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What does depreciation do?
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Create lower earnings and increase DTL
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What is the cost method?
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Used if ownership is less than 20%
Carried at original cost basis Gains and losses are realized when shares are sold If shares experience a significant or perceived decline they may be written down |
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What is the equity method?
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Used if ownership is 20 - 50%
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When do you consolidate?
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When ownership interest exceeds 50 percent of company
Balance sheets and income statements are combined Balance sheets indicate NCI in net earnings of consolidated companies |
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What is the only GAAP approved method for consolidation?
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Purchase Method
Often creates goodwill which is evaluated annually for impairment |
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What is goodwill?
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Purchase price in excess of fair market value)
Has indefinite useful life Not amortized Tested annually for impairment |
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What is the difference between amortization for goodwill and other things?
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Goodwill impairment compares fair value of operating unit to book value
If fair value is less, impairment loss is recognized Intangible assets with finite useful lives will be amortized over life No arbitrary ceiling |
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What about stock splits and dividends?
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Par value for common not reduced for small stock dividends (less than 25%)
RE debited for market value of shares CS is created for par value of shares PIC is credited for difference For large stock dividends (25%+) par value is reduced RE would not change |
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What corporate actions are dilutive to shareholders?
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Company issuing additional stock
Conversion of convertible bonds |
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What is operating leverage?
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The combination of fixed and variable costs
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What are some examples of non-recurring costs?
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Sale of an asset or business
Severance cost Change in the method of accounting Litigation charges |
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How do you calculate current ratio?
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Current assets / current liabilities
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How do you calculate quick ratio?
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Cash + STI + A/R / CL
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How do you calculate days sales out?
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A/R / Sales * Days
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How do you calculate ROE?
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NI / Average SE
Companies with preferred stock: NI - Preferred Divs / SE - Preferred Equity |
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What is the formula for debt / equity ratio?
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Total Debt / Total SE
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What are the turnover ratios?
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Sales / Average AR
COGS / Average Inv |
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How do you calculate ROA?
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NI / Average Assets
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How do you calculate basic EPS?
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NI / Average shares of CS out
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