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