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49 Cards in this Set
- Front
- Back
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Three things we need to know for measuring and evaluating financial performance |
the general categories to evaluate the particular elements within each category how to measure performance |
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Benchmarks can include.. |
the company's prior year results and the results of close competitors or the average for the industry |
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help when interpreting a company's ratios |
benchmarks |
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The goal of managerial accounting is to... |
provide information for decision makers to understand and evaluate the results of the business decisions. |
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Three financial analyses tools |
horizontal analyses Vertical analyses ratio analyses |
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also called trend analyses |
horizontal analyses |
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In horizontal analyses, we compute/compare financial statement items to comparable amounts in ______ _______ with the goal of identifying __________ ________, or _____. |
prior periods sustained changes trends |
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Year to year change |
Current year total - prior or base year total x 100/prior year total |
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Who establishes the base year? |
Management |
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Trends are revealed in... |
horizontal analyses |
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reveals whether a company grew during the year and indicates whether a company changes its reliance on debt vs. equity financing |
B/S |
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analysis indicates key changes in operations of the company |
I/S |
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For vertical analyses, create ______ _____ financial statements that express each line of the income statement (or balance sheet) as a ______ __ ______ ______ (or _____ ______). |
common size percentage of total sales total assets |
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Take sales and tell what proportion the... |
other numbers are of sales |
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One point for vertical analyses |
stated item as a portion of another total item. |
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formula for vertical analyses |
current item total x 100/category total |
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The vertical analyses information tells the reader... |
whether the proportions within each statement category are changing |
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Vertical (common size) analysis of a company's balance sheet highlights... |
key elements of the company |
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Vertical (common size) analysis of a company's balance sheet reveals the... |
most important determinants of the company's profitability |
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compare one of more financial statement items to an amount for other items for the same year |
ratio analyses |
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Ratio take into account differences in the size of amounts to allow for... |
evaluations of performance given existing levels of other company resources. |
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Financial ratios are commonly classified with relation to... |
profitability liquidity solvency |
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Profitiability ratios focurs on _______ _the ________ of a _________ _______ by comparing it to other items reported on the financial statements |
measuring the adequacy of a company's income |
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the extent to which a company generates income |
profitability ratio |
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net profit margin = |
net income/net sales revenue |
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net income = |
sales - discounts, returns, and allowance |
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Gross profit percentage = |
(net sales revenue - cost of goods sold)/net sales revenue |
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what does gross profit percentage tell us? |
after we reimburse ourselves, how many dollars are left? |
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Total asset turnover = |
net sales revenue/average total assets |
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average total assets = |
beginning inventory + ending inventory/2 |
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Return on equity |
net income/average stockholder's equity |
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What is the going concern? |
the business will still be in business next year |
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Nine profitability ratios |
net profit margin gross profit percentage asset turnover fixed asset turnover return on equity return on investment earnings per share quality of income price/earnings ratio |
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Return on investment |
net operating income/average invested assets |
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earnings per share |
net income/average number of common shares |
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price/earning ratio |
stock price/earnings per share |
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Liquidity ratios measure a company's... |
ability to meet its current debt obligations. |
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One point for liquidity ratios |
the extent to which a company is able to pay its currently maturing obligations |
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six liquidity ratios |
receivables turnover days to collect inventory turnover days to sell current ratio quick ratio |
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receivables turnover = |
net sales revenue/average net receivables |
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days to collect - |
365/receivables turnover ratio |
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Inventory turnover = |
cost of sales/average inventory |
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Days to sell = |
365/inventory turnover ratio |
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Current Ratio = |
current assets/current liabilities |
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quick ratio = |
(Cash + Short-term investments + Accounts receivable, net)/Current liabilities |
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Solvency ratios measure a company's ability to... |
meet its long-term debt obligations |
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One point for solvency ratios |
the ability to survive long enough to repay lenders when debt matures |
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debt to assets = |
total liabilities/total assets |
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Three solvency ratios |
debt-to-assets times interest earned capital acquisitions ratio |
