Finance Test 2

Front 1

Income statement

Back 1

"statement of earnings"
Presents:
Revenues
Expenses
Net income
Earnings per share

Front 2

Multi-step income statement

Back 2

Provides intermediate profit measures prior to the amount of net earnings for the period
-gross profit
-operating profit
-Earnings before income taxes
Used for purpose of analysis

Front 3

Single step Income statement

Back 3

Groups all items of revenue together, then deducts all categories of expense to arrive at a figure for net income

Front 4

special items that must be disclosed speratelyt on an income statement

Back 4

- discontinued operations
- extraordinary transactions
- cumulative effect of changes in
accounting principles

Front 5

common size income statement

Back 5

expresses each income item as a percentage of net sales

Front 6

sales return

Back 6

cancelation of a sale

Front 7

sale allowance

Back 7

deduction from the original sales invoice price

Front 8

Gross profit

Back 8

first step of profit measurment
net sales - COGS

Front 9

gross profit margin

Back 9

Gross profit / net sales

Front 10

Examples of operating expense

Back 10

selling and administration
advertising
operating lease payments
depreciation and amortization
repairs and maintenance

Front 11

Depreciation

Back 11

Used to allocate the cost of tangible fixed assets such as: buildings, machinery, and equipment.

Front 12

Amortization

Back 12

Allocation process applied to intangible assets such as: patents, copyrights, trademarks, and franchises

Front 13

Depletion

Back 13

Allocation applied to acquisition and development of natural resources such as oil and gas, other minerals, standing timber.

Front 14

The amount of expense recognized in
any accounting period will depend on

Back 14

- the level of investment in the
relevant asset
- estimates with regard to the
asset’s service life and residual
value
- and for depreciation, the method
used

Front 15

Operating profit

Back 15

Second step of profit measurement
"EBIT"

Front 16

Equity method

Back 16

Allows the investor proportionate recognition of the investee’s net income, irrespective of the payment or nonpayment of cash dividends

Front 17

Cost method

Back 17

Investor recognizes investment income only to the extent of any cash dividends received

Front 18

Effective tax rate

Back 18

Income taxes / EBIT

Front 19

Discontinued operations

Back 19

Occur when a firms sells or discontinues a clearly distinguishable portion of its business

Front 20

Extraordinary Items

Back 20

Gains and losses that meet 2 criteria
1) Unusual in nature
2) Not expected to recur in the forceable future

Front 21

net earnings

Back 21

"bottom line"
- Profit after ALL revenues and expenses

Front 22

Comprehensive Income

Back 22

The change in equity of a company during a period from transactions, other events, and circumstances relating to nonowner sources

Front 23

Companies required to report total in one of three ways:

Back 23

1)On the face of the income statement
2) In the statement of stockholders’ equity
3) In a separate statement

Front 24

4 items that comprise a companies comprehensive income

Back 24

1. Foreign currency translation effects
2. Unrealized gains and losses
3. Additional pension liabilities
4. Cash flow hedges

Front 25

Statement of stockholders Equity

Back 25

Details the transactions that affected the balance sheet equity accounts during an accounting period
- Describes "events"

Front 26

Statement of cash flows

Back 26

provides information about cash inflows and outflows during an accounting period

Front 27

4 parts of a statement of cash flow

Back 27

1. cash
2. operating activities
3. investing activities
4. financing activities

Front 28

Cash includes

Back 28

cash and cash equivalents (short-term marketable securities):
T-bills
Notes
Bonds
Commercial paper
CDs

Front 29

Operating activities

Back 29

- Delivering or producing goods for sale and providing services
- The cash effects of transactions and other events that enter into the determination of income

Front 30

Investing activities

Back 30

- Acquiring/disposing of securities that are not cash equivalents
- Acquiring/disposing of productive assets
- Lending money/collecting on loans

Front 31

2 methods to calculate cash flow from operating activities

Back 31

direct & indirect
- produce identical results
- majority of firms use indirect method

Front 32

It is possible for a firm to be
highly profitable and not be able to:

Back 32

- Pay dividends or invest in new equipment
- Service debt
- go bankrupt (no cash)

Front 33

Generating cash from operations is the preferred method for obtaining excess cash to finance:

Back 33

- Capital expenditures and expansion
- Repayment of debt
- Payment of dividends