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53 Cards in this Set
- Front
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generally accepted accounting principles (GAAP) |
the practice and procedure guidelines used to prepare and maintain financial records and reports authorized by the Financial Accounting Standards Board (FASB) |
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Financial Accounting Standards Board (FASB) |
the accounting profession's rule-setting body, which authorizes generally accepted accounting principles (GAAP) |
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Public Company Accounting Oversight Board (PCAOB) |
a not-for-profit corporation established by the Sarbanes-Oxley Act of 2002 to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports |
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stockholders' report |
annual report that publicly owned corporations must provide to stockholders; it summarizes and documents the firm's financial activities during the past year |
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letter to stockholders |
typically, the first element of the annual stockholders' report and the primary communication from management |
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income statement |
provides a financial summary of the firm's operating results during a specified period |
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dividend per share (DPS) |
the dollar amount of cash distributed during the period on behalf of each outstanding share of common stock |
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balance sheet |
summary statement of the firm's financial position of a given point in time |
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current assets |
short-term assets, expected to be converted into cash within 1 year or less |
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current liabilities |
short-term liabilities, expected to be paid within 1 year or less |
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long-term debt |
debt for which payment is not due in the current year |
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paid-in capital in excess of par |
the amount of proceeds in excess of the par value received from the origonal sale of common stock |
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retained earnings |
the cumulative total of all earnings, net of dividends, that have been retained and reinvested in the firm since its inception |
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statement of stockholders' equity |
shows all equity account transactions that occurred during a given year |
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statement of retained earnings |
reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and the end of that year. An abbreviated form of the statement of stockholders' equity |
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statement of cash flows |
provides a summary of the firm's operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period |
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notes to the financial statements |
explanatory notes keyed to relevant accounts in the statements; they provide detailed information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements |
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Financial Accounting Standards Board (FASB) Standard No. 52 |
mandates that U.S.-based companies translate their foreign-currency-denominated assets and liabilities into U.S. dollars, for consolidation with the parent company's financial statements. This process is done by using the current rate (translation) method |
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current rate (translation) method |
technique used by U.S.-based companies to translate their foreign-currency-denominated assets and liabilities into U.S. dollars, for consolidation with the parent company's financial statements, using the year-end (current) exchange rate |
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ratio analysis |
involves methods of calculating and interpreting financial ratios to analyze and monitor the firm's performance |
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cross-sectional analysis |
comparison of different firms' financial ratios at the same point in time; involves comparing the firm's ratios with those of other firms in its industry or with industry averages |
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benchmarking |
a type of cross-sectional analysis in which the firm's ration values are compared with those of a key competitor or with a group of competitors that it wishes to emulate |
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time-series analysis |
evaluation of the firm's financial performance over time using financial ratio analysis |
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liquidity |
a firm's ability to satisfy its short-term obligations as they come due |
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current ratio |
a measure of liquidity calculated by dividing the firm's current assets by its current liabilities |
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quick (acid-test) ratio |
a measure of liquidity calculated by dividing the firm's current assets minus inventory by its current liabilities |
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activity ratios |
measure the speed with which various accounts are converted into sales or cash, or inflows or outflows |
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inventory turnover |
measures the activity, or liquidity, of a firm's inventory |
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average age of inventory |
average number of days' sales in inventory |
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average collection period |
the average amount of time needed to collect accounts receivable |
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average payment period |
the average amount of time needed to pay accounts payable |
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total asset turnover |
indicates the efficiency with which the firm uses its assets to generate sales |
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financial leverage |
the magnification of risk and return through the use of fixed-cost financing, such as debt and preferred stock |
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degree of indebtedness |
measures the amount of debt relative to other significant balance sheet amounts |
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ability to service debts |
the ability of a firm to make the payments required on a scheduled basis over the life of a debt |
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coverage ratio |
ratios that measure the firm's ability to pay certain fixed charges |
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debt ratio |
measures the proportion of total assets financed by the firm's creditors |
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debt-to-equity ratio |
measures the relative proportion of total liabilities and common stock equity used to finance the firm's total assets |
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times interest earned ratio |
measures the firm's ability to make contractual interest payments; sometimes called the interest coverage ratio |
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fixed-payment coverage ratio |
measures the firm's ability to meet all fixed-payment obligations |
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common-size income statement |
an income statement in which each item is expressed as a percentage of sales |
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gross profit margin |
measures the percentage of each sales dollar remaining after the firm has paid for its goods |
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operating profit margin |
measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted; the "pure profits" earned on each sales dollar |
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net profit margin |
measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted |
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return on total assets (ROA) |
measures the overall effectiveness of management in generating profits with its available assets; also called the return on investment (ROI) |
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return on equity (ROE) |
measures the return earned on the common stockholders' investment in the firm |
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market ratios |
relate a firm's market value, as measured by its current share price, to certain accounting values |
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price/earnings (P/E) ratio |
measures the amount that investors are willing to pay for each dollar of a firm's earnings; the higher the P/E ratio, the greater the investor confidence |
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market/book (M/B) ratio |
provides an assessment of how investors view the firm's performance. Firms expected to earn high returns relative to their risk typically sell at higher M/B multiples |
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DuPont system of analysis |
system used to dissect the firm's financial statements and to assess its financial condition |
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DuPont formal |
multiplies the firm's net profit margin by its total asset turnover to calculate the firm's return on total assets (ROA) |
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modified DuPont formula |
relates the firm's return on total assets (ROA) to its return on equity (ROE) using the financial leverage multiplier (FLM) |
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financial leverage multiplier (FLM) |
the ratio of the firm's total assets to its common stock equity |
