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25 Cards in this Set
- Front
- Back
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Why would a company want to issue bonds instead of stock?
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1. Stockholders maintain control
2. Interest expense is tax-deductible 3. The impact on earnings is positive |
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Bond Principal
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Amount that is:
1. payable at the maturity date and 2. on which the periodic cash interest payments are computed Also called par value, face amount, maturity value |
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Return on Assets (calculation and what does it show?)
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Net Income divided by Average Total Assets
Shows how much the firm earned for each dollar of investment |
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Net Profit Margin (calculation and what does it show?)
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Net Income divided by Net Sales
Shows how much of every sales dollar is profit |
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Asset Turnover (calculation and what does it show?)
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Net Sales divided by Average Total Assets
Shows how many sales dollars the company generates with each dollar of assets |
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Debt-to-Equity ratio (calculation and what does it show?)
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Total Liabilities divided by Stockholder's Equity
Shows how much a company relies on funds provided by creditors compared to funds provided by investors |
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Times interest earned ratio (calculation and what does it show?)
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Net Income + Interest Expense + Income Tax Expense ALL divided by Interest Expense
Measures a company's ability to generate resources from current operations to meet its interest obligations |
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Earnings Per Share (calculation and what does it show?)
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Net Income divided by the Average number of outstanding shares for the period
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Debenture
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Unsecured bond; no assets are are specifically pledged to guarantee repayment
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Callable Bond
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May be called for early retirement at the option of the issuer
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Convertible Bond
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May be converted to other securities of the issuer (usually common stock)
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Zero Coupon Bond
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A bond that doesn't pay any period cash interest payments. They're bought by investors because they sell for a deeply discounted price.
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Corporation (definition along with their advantages)
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A corporation is a separate legal entity (authorized by law to operate as an individual).
Advantages: -Transfer-ability of ownership -Limited liability to the owners -the ability to accumulate large amounts of resources |
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Who are the players in the accounting process (in general)?
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Regulators
Managers Board of Directors Auditors Info Intermediaries Users |
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Regulators
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Securities and Exchange Comission (SEC) - protects investors, maintains integrity of securities market
Financial Accounting Standards Board - sets GAAP Public Company Accounting Oversight Board - Sets auditing standards for independent auditors (CPAs) of public companies |
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Managers (what's their responsibility?)
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Primary responsible for the information in the financial statements and disclosures
CEO - highest officer of the company CFO - highest officer associated with the financial/accounting side of business Accounting Staff - prepare the details of the reports and bear professional responsibility for the accuracy of the information |
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Board of Directors (responsibility?)
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Responsible for ensuring that processes are in place for maintaining the integrity of the company’s accounting, financial statement preparation, and financial reporting
Audit Committee - responsible for hiring the company's independent auditors (also meets with them to discuss managers' compliance with their financial reporting responsibilities) |
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Auditors
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Independent auditors are responsible for following established auditing standards to assess the fairness of the financial statements and related presentations
They sign an unqualified (clean) opinion which states that the financial statements are fair presentations in all material respects in conformity with GAAP |
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Information Intermediaries
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Financial Analysts that receive accounting reports and other information about the company from electronic information services
They also gather information through conversations with company executives and visits to the company's facilities and their competitors |
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Users
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Institutional Investors - includes pension, mutual, endowment and other funds that invest on the behalf of others
Private Investors - Individuals who purchase shares in companies Lenders or Creditors - Suppliers, banks, commercial credit companies, and other financial institutions that lend money to companies |
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High-Value Strategy
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Relying on R&D and product promotion to
convince customers of the superiority of your product |
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Low-Cost Strategy
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Relying on efficient management of accounts receivable, inventory and productive assets
to produce high asset turnover |
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Form 10-Q
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Quarterly report filed by public companies with the SEC that contains additional unaudited financial information
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Form 10-K
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Annual report filed by public companies with the SEC that contains additional detailed financial information
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Form 8-K
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Report of special events (e.g., auditor changes, mergers) filed by public companies with the SEC
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