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89 Cards in this Set

  • Front
  • Back
receivables turnover
annual sales / average receivables
days of sales outstanding
365 / receivables turnover
inventory turnover
COGS / average inventory
days of inventory on hand
365 / inventory turnover
payables turnover
purchases / average trade payables
number of days of payables
365 / payables turnover
total asset turnover
revenue / average total assets
fix asset turnover
revenue / average net fixed assets
working capital
current assets - current liabilities
working capital turnover
revenue / average working capital
Activity Ratios
receivables turnover
days of sales outstanding
inventory turnover
days of inventory on hand
payables turnover
number of days of payables
total asset turnover
fix asset turnover
working capital
working capital turnover
current ratio
current assets / current liabilities
quick ratio
(cash + marketable securities + receivables) / current liabilities
cash ratio
(cash + marketable securities) / current liabilities
defensive interval
(cash + marketable securities + receivables) / average daily expenditures
cash conversion cycle
day of sales outstanding + days of inventory on hand - number of days of payables
liquidity ratio
current ratio
quick ratio
cash ratio
defensive interval
cash conversion cycle
total debt / total shareholder's equity
total debt / (total debt + total shareholder's equity)
total debt / total assets
financial leverage
average total assets / average total equity
interest coverage
EBIT / interest payments
fixed charge coverage
(EBIT + lease payments) / (interest payments + lease payments)
solvency ratio
financial leverage
interest coverage
fixed charge coverage
net profit margin
net income / revenue
gross profit margin
gross profit / revenue
operating profit margin
operating income / revenue or EBIT / revenue

strictly speaking EBIT also includes non-operating income
pretax margin
EBT / revenue
net income / average total assets
[net income + interest expense(1-tax rate)] / average total assets
operating return on assets
operating income / average total assets or EBIT / average total assets

strictly speaking EBIT also includes non-operating income
return on total capital
EBIT / average total capital

total capital includes short-term, long-term debt, preferred equity and common equity
net income / average total equity
return on common equity
(net income - preferred dividends) / average common equity
profitability ratios
net profit margin
gross profit margin
operating profit margin
pretax margin
operating return on assets
return on total capital
return on common equity
Free Cash Flow to the Firm
= net income + noncash charges + [interest expense * ( 1 - tax rate)] - fixed capital investment - working capital invesetment

Or CFO + [interest expense * ( 1 - tax rate)] - fixed capital investment

- FCFF is cash flow to equity holder and debt holder
- noncash charges include depreciation and amortization
Free Cash Flow to Equity
= cash flow from operations - fixed capital investment + net borrowing
common-size income statement ratios
income statement account / sales
common-size balance sheet ratios
balance sheet account / total assets
common-size cash flow ratios
cash flow statement account / revenues
original DuPont equation
ROE = net profit margin * asset turnover * leverage ratio

leverage ratio is also called equity multiplier
extended DuPont equation
ROE = tax burden * interst burden * EBIT margin * asset turnover * financial leverage
basic EPS
(net income - preferred dividends) / weighted average number of common shares outstanding
diluted EPS
[net income - preferred dividends + convertible preferred dividends + convertible debt interest(1- tax rate)] / (weighted average shares + shares from conversion of conv. pft. shares + shares from conversion of conv. debt + shares issuable from stock options)
coefficient of variation
STD / Mean
CV Sales
STD sales / mean sales
CV Operating income
STD operating income / mean operating income
CV net income
STD net income / mean net income
ending inventory
beginning inventory + purchases - COGS
straight-line depreciation
(cost - salvage value) / useful life
DDB depreciation
(2 / useful life) * (cost - accumulated depreciation)
units-of-production depreciation
(original cost - salvage value) / life in output units * output unites in the period
income tax expense
taxes payable + ΔDTL - ΔDTA
interest expense
the market rate at issue * the balance sheet value of the liability at the beginning of the period
cash flow-to-revenue
CFO / net revenue
cash return-on-assets
CFO / average total assets
cash ROE
CFO / average total equity
CFO / operating income
cash flow per share
(CFO - preferred dividends) / weighted average number of common shares
debt coverage
CFO / total debt
interest coverage ratio
(CFO + interest paid + taxes paid) / interest paid
reinvestment ratio
CFO / cash paid for long-term assets
debt payment
CFO / cash long-term debt repayment
dividend payment
CFO / dividends paid
investing and financing (cash flow)
CFO / cash outflows from investing and financing activities
Cash Flow from Operating Activities
EBIT + Depreciation - Taxes
Calculate CFO using indirect method
1. Start with Net Income
2. Subtract gains or add losses resulted from financing or investing cash flows
3. Add back all non-cash charges to income (such as depreciation and amortization) and subtract all non-cash components of revenue
4. Add or subtract changes to balance sheet operating accounts:
-> Increases in the operating asset accounts (use of cash) are subtracted, while decreases (source of cash) are added
-> Increase in the operating liability accounts (source of cash) are added, while decrease (use of cash) are subtracted
gross profit, operating profit, EBIT, EBT, net income
gross profit = revenue - COGS
operating profit = gross profit - operating expenses (SG&A, depreciation)
EBIT = operating profit + other income - other expense
EBT = EBIT - interest expenses
net income = EBT - tax expenses
What is an auditor's qualified, unqualified opinion and disclaimer of opinion?
Unqualified opinion means the financial statements are clean and fairly presented
Qualified opinion means the financial statements are not fairly presented
Disclaimer of opinion means the auditor is not able to express an opinion
What is initial trial balance and what is adjusted trial balance?
Initial trail balance was prepared at the end of each accounting period to show the balance of each account. If adjustment is needed, adjustments are made and reflected in adjusted trial balance.
What are fundamental and enhancing characteristics of financial statements?
Fundamental: relevance and faithful representation
Enhancing: comparability, verifiability, timeliness, and understandability
What are the characteristics of a coherent financial reporting framework?
Transparency, comprehensiveness, consistency
List four type of transactions that affect equity, but not net income.
Gains and losses from foreign currency translation
Pension obligation adjustments
Unrealized gains and losses from cash flow hedging activities
Unrealized gains and losses from available-for-sale securities
How to know if convertible debt is dilutive or antidilutive?
Dilutive: [convertible debt interest * (1-t)] / convertible debt shares < basic EPS
Antidilutive: the other way round
For inventory valuation in balance sheet, what is the difference between IFRS and GAAP?
IFRS: lower of cost and net realizable value (selling price - completion cost)
GAAP: lower of cost and market (replacement cost)
For PP&E valuation in balance sheet, what is the difference between IFRS and GAAP?
IFRS: PP&E can be reported using cost model or the revaluation model
GAAP: only allows cost model
(recoveries of impairment losses is not allowed under GAAP)
How are R&D costs reported differently under IFRS and GAAP?
IFRS: research costs are expensed and development costs are capitalized
GAAP: R&D costs are both expenses
How is good will calculated?
Goodwill = purchase price - fair value (during acquisition)
What are the components of owner's equity (shareholders' equity)?
Contributed capital
preferred stock
Noncontrolling interest (of subsidiary)
retained earnings
treasury stock
accumulated other comprehensive income
What is difference between trading securities and available-for-sale securities with regard to its treatment in income statement?
Trading security:
any urealized gains and losses are recognized in the income statement
Available-for-sale securities:
unrealized gains and losses are not recognized in the income statement, but are reported in the accumulated other comprehensive income as part of shareholder's equity
How are dividends received, dividends paid, interest received, interest paid, taxes paid treated in IFRS and GAAP?
Dividends and interests paid can be treated as operating cash flow or financing cash flow
Interest received and dividends received can be treated as operating or investing cash flow.
Dividends paid are financing cash flows
Interest paid, interest received, and dividends received are operating cash flows
How to calculate the recoverable amount of an asset under IFRS?
the greater of fair value less selling cost and the value in use
How are interest earned from temporary investment using borrowed funds for construction of an asset treated differently under IFRS and GAAP?
IFRS: interest earned from temporary investment using borrowed funds is used to reduces the capitalized interest
GAAP: not allowed
Effective Interest Rate?
interest expense = book value of bond liability at the beginning * bond's yield at issuance
What is a synthetic lease?
(in united states)
For tax reporting: treat lease as an ownership, thus reducing tax base by factoring in depreciation
For financial reporting: the lease is treated as rental agreement (thus the liability is off the balance sheet)
How are issuance costs associated with bonds treated under IFRS and GAAP?
IFRS: bond issuance costs are netted against the bond proceeds
GAAP: issuance costs are capitalized as an asset and expenses are recognized over the term of the bond
How is early redemption of bonds recognized in financial reporting?
Gain and loss is recognized by subtracting the redemption price from the book value at the acquisition date.
Under GAAP, remaining unamortized bond issuance costs must be written off. Under IFRS, it's not required.
It's reported in income statement, usually as a part of continuing operations.
What is accrued liabilities?
expenses that have been recognized in the income statement but are not yet contractually due. (accrued liabilities are not interest bearing)
What is total debt?
total debt = long-term debt + interest bearing short-term debt
What is the fraud triangle?
Incentives and pressures
Attitudes and rationalizations