ACC1701 X Cheatsheet AY19/20 Sem 1 PDF

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Lecture 1: Business Decisions and Financial Accounting Sole Proprietorship Owner(s) liable for debts Partnership (2 or more) Corporation No one is personally liable External users of Financial Accounting:  Lenders, Shareholders, Government, Customers, Auditors Separate Entity Assumption: The financial reports of a business are assumed to include the results of only that business’s activities Basic Accounting Equation: Assets (A) = Liabilities (L)+ Stockholders’ Equity (SE) Cash, Supplies, Notes Payable, Acc Common Stock, Retained Equipment, ST Payable, Salary Earnings Investments, (NI-Div) payable, Deferred Prepaid Expense Revenue * Dividend is not an expense Net Income (NI) = Revenues - Expenses - Dr + Cr - Cr + Dr Sales revenue, Wages, Insurance, service revenue Utilities, Supplies Financial Statements: Income Statement  Statement of Retained Earnings  Balance Sheet  Statement of Cash Flows Useful Financial Information: Fundamental Qualitative Relevance, Faithful Representation Enhancing Qualitative Comparability, Verifiability, Timeliness, Understandability Lecture 2: Balance Sheet  Based on A = L + SE  Every transaction has 2 effects on the basic Acc Eqn Debit/Credit Framework: A= L+ SE Dr Cr Dr Cr Dr Cr + + + Journal Entry and T-Accounts: If event involves exchanges of promises and no goods or services delivered, it is not a transaction and no journal entry recorded. Keywords Record  Journal Entries Prepare Ledgers  T-Accounts Journal Entries Debit Credit Dr Cash (+A) 10,000 Cr Common Stock (+SE) 10,000 T-Accounts: Common Stock (SE) Cash (A) 0 BB BB 0 10,000 (a) 10,000 10,000 EB EB 10,000 Company Trial Balance At Date Cash Common Stock Total

Debit $10,000 $10,000

Credit $10,000 $10,000

Current Assets are assets that will be used up or turned into cash within the next 12 months of the balance sheet date. Current Liabilities are debts and other obligations that will be paid or fulfilled within 12 months of the balance sheet date. 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑹𝒂𝒕𝒊𝒐 = 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 * A higher Current Ratio generally means a better ability to pay. (>1) Net Current Assets (NCA) = Current Assets - Current Liabilities If NCA or Working Capital > 0  Current Ratio > 1 Cost Principle: Accounting information is based on actual cost. Actual cost is considered objective.

Company Balance Sheet At Date Assets Current Assets Cash $10,000 Supplies 6,000 Inventories 2,000 Acc Receivable $4,000 Less: Allowance for doubtful acc 4,000 Acc Receivable, net 0 Total Current Assets 18,000 Equipment 9,000 Accumulated Depreciation (400) Equipment, net 8,600 Software 9,000 Accumulated Amortization. (200) Software, net 8,800 Total Assets $35,400 Liabilities and Stockholders’ Equity Current Liabilities Acc Payable $10,000 Total Current Liabilities 10,000 Notes Payable 4,000 Total Liabilities 14,000 Stockholders’ Equity Common Stock 11,000 Retained Earnings 10,400 Total Stockholders’ Equity 21,400 Total Liabilities & Stockholders’ Equity $35,400 Lecture 3: Income Statement Time Period Assumption presumes that the life of a company can be divided into time periods, such as years & months. Cash Basis Accounting records revenues when cash is paid and expenses when cash is paid. Accrual Basis Accounting records revenues when earned and expenses when incurred. (Revenue Recognition Principle and Expense Recognition Principle) 𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆 𝑵𝒆𝒕 𝑷𝒓𝒐𝒇𝒊𝒕 𝑴𝒂𝒓𝒈𝒊𝒏 = 𝑹𝒆𝒗𝒆𝒏𝒖𝒆𝒔 Company Income Statement At Date Revenues Sales Revenue $10,000 Service Revenue 6,000 Total Revenues 16,000 Expenses Salary and Wage Expense 10,000 Rent Expense 2,000 Insurance Expense 1,000 Total Expenses 13,000 Net Income $ 3,000 Lecture 4: Adjustments, Financial Statements & Financial Results Adjustments Paid (received) cash before Paid (received) cash after expense expense (revenue) recognised (revenue) recognised Prepaid Unearned Accrued Accrued (Deferred) (Deferred) Expenses Revenues Expenses Revenues ↓A ↑E ↓L ↑R ↑L ↑E ↑A ↑R Depreciation is the process of allocating the cost of buildings, vehicles & equipment to the accounting period in which they are used. Closing Process: Transfer net income (or loss) and dividends to Retained Earnings. Establish zero balances in all income statement (Revenues and Expenses) and dividend accounts. Dr Revenue  Cr Retained Earnings Cr Expenses  Dr Retained Earnings Lecture 5: Fraud, Internal Control, and Cash

Fraud is generally defined as an attempt to deceive others for personal gain. (Corruption, Asset Misappropriation, Financial Statement Fraud) Internal Control consists of actions taken by people at every level of an organisation to achieve its objectives. (Operations, Reporting, Compliance) Principles of Control Activities: Establish Responsibility  Segregate Duties  Restrict Access  Document Procedures  Independently Verify Internal controls can never completely prevent and detect errors and fraud for 2 reasons: 1) Benefits must exceed the costs 2) Human Error or Fraud Petty Cash System: A petty cash system is used to reimburse employees for small expenditures they have made on behalf of the organisation. Petty Cash Journal Entries: Dr Petty Cash Fund 300 Cr Cash at Bank 300 Dr Supplies 40 Dr Travel Expense 21 Dr Office Expense 6 Cr Petty Cash 67 Dr Petty Cash 67 Cr Cash at Bank 67 Bank Reconciliation: A bank reconciliation is an internal report prepared to verify the accuracy of both the bank statement and the cash accounts of a business or individual. (Restricting Access, Documenting Procedures, Independently Verify) Bank’s ending balance Book’s ending balance + Deposit in transit + Bank collection items - Outstanding cheques + Interest Revenue earned +/- Correction of bank errors - GIRO payments - Bank service charges - NSF cheques +/- Correction of book errors Adjusted Bank Balance =

Adjusted Book Balance

After reconciliation, make journal entries to record the reconciling items between original book balance and adjusted book balance.  Adjust book balance to the adjusted balance Lecture 6: Receivables, Bad Debt Expense, and Interest Revenue Extending Credit Advantages Disadvantages Increase seller’s revenue Increased wage costs Bad debt costs Delayed receipt of cash Methods of estimating bad debts: 1. Percentage of Credit Sales (Simpler)  Estimate bad debt expense by multiplying historical percentage of bad debt losses 2. Aging of Acc Receivables (More Accurate)  Estimate ending balance in the Allowance for Doubtful Acc Bad Debt Journal Entries: Dr Acc Receivables 1,300 Cr Sales Revenue 1,300 Estimation of Bad Debt Dr Bad Debt Expense 300 Cr Allowance for Doubtful Acc 300 Bad Debt incurred Dr Allowance for Doubtful Acc 250 Cr Acc Receivables 250 Other Issues: Revising Estimates, Acc Recoveries Revising Estimates  Bad debt estimates might differ from the amounts that are written off  If the differences are material, companies required to revise their bad debt estimates  alter the percentage Acc Recoveries  Collection of a previous write-off  Reverse the writeoff  Record the collection Journal Entries for Acc Recoveries Dr Acc Receivables 250 Cr Allowance for Doubtul Acc 250 Dr Cash 250 Cr Acc Receivables 250

Direct Write-off Method Journal Entries Dr Bad Debt Expense 1,000 Cr Acc Receivable 1,000 Receivables Turnover Ratio indicates how many times on average this process of selling and collecting is repeated during this period. The higher the ratio, the faster the collection of receivables. (Days to collect) 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑵𝒆𝒕 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔 Average Net Receivables = (Beginning NR + Ending NR)/2 NR = Acc Receivable – Allowance for Doubtful Acc 𝟑𝟔𝟓 𝑫𝒂𝒚𝒔 𝒕𝒐 𝒄𝒐𝒍𝒍𝒆𝒄𝒕 = 𝑹𝒆𝒄𝒆𝒊𝒗𝒂𝒃𝒍𝒆𝒔 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 Speeding up collections: 1. Factoring Receivables (Sell outstanding acc receivables) 2. Credit Card Sales Notes Receivable and Interest Revenue: Company reports note receivable if it use a promissory note to document its right to collect money. (Accrued Interest) 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 = 𝑷𝒓𝒊𝒏𝒄𝒊𝒑𝒂𝒍 × 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑹𝒂𝒕𝒆 × 𝑻𝒊𝒎𝒆 Journal Entries for Note Receivables and Interest At the start of the year Dr Notes Receivable 1,000 Cr Cash 1,000 At the end of the year Dr Interest Receivable 100 Cr Interest Revenue 100 At maturity Dr Cash 1,100 Cr Interest Receivable 100 Cr Notes Receivable 1,000 Lecture 7: Merchandising Operations, Inventory, COGS Services Companies: Sell services  Collect cash  Pay operating expenses Merchandising Companies: Buy inventory  Sell inventory  Collect cash  Pay operating expenses 𝑪𝑶𝑮𝑺 = 𝑩𝑰 − 𝑬𝑰 + 𝑷 (𝑷𝒆𝒓𝒊𝒐𝒅𝒊𝒄) 𝑬𝑰 = 𝑩𝑰 + 𝑷 − 𝑪𝑶𝑮𝑺 (𝑷𝒆𝒓𝒑𝒆𝒕𝒖𝒂𝒍) 𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 = 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 − 𝑪𝒐𝒔𝒕 𝒐𝒇 𝑮𝒐𝒐𝒅𝒔 𝒔𝒐𝒍𝒅 NSR = Sales Revenue – Sales Returns & Allowances – Sales Discount Inventory Periodic Perpetual Updates the inventory system at Updates the inventory system the end of the accounting period every time the inventory is  physically counted by the bought, sold or returned  employees at the end  cannot completed using bar codes  estimate shrinkage can estimate shrinkage Purchase/Sales Discount: 2/30, n/60 (2% discount within first 30 days, payment by 60 days) Net Method: recorded at the time of initial purchase/sale *Gross Method: recorded later when the cash is paid/received Purchase Goods received Dr Inventory 1,000 Cr Acc Payable 1,000 Payment within discount period Dr Acc Payable 1,000 Cr Cash 980 Cr Inventory 20 Sale Goods delivered Dr Acc Receivable 1,500 Cr Sales Revenue 1,500 Dr COGS 980 Cr Inventory 980 Payment within discount period Dr Cash 1,470 Cr Acc Receivable 1,500 Dr Sales Revenue 30 

Recording Inventory Transactions: Purchased $10,300 of bikes on account Dr Inventory 10,300 Cr Acc Payable 10,300 Paid $200 to transport the bikes Dr Inventory 200 Cr Cash 200 Returned some bikes for $500 reduction in balance owed Dr Acc Payable 500 Cr Inventory 500 Sales of bikes Dr Cash 8,700 Cr Sales Revenue 8,700 Dr COGS 8,500 Cr Inventory 8,500 Sales Refund Dr Inventory 500 Cr COGS 500 Dr Sales Revenue 700 Cr Cash 700 LCM/NRV: When value of item < cost of item Dr COGS 15,000 Cr Inventory 15,000 For shipping, transfer of control can occur at *1) FOB shipping point 2) FOB destination Multi-Step Income Statement Net Sales $10,000 COGS 5,000 Gross Profit 5,000 Selling, Admin, General Expenses 2,000 Income from Operations 3,000 Other expenses, net 500 Income before tax 2,500 Income Tax Expense 250 Income, net $2,250 𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕 % = × 𝟏𝟎𝟎% 𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 Measures the % of gross profit earned on each dollar of sales. Higher Gross Profit %: Company selling products for a greater mark-up over its cost. Analyse changes in the company’s operation over time, compare one company to another & determine if a company is earning enough on each sales to cover its operating expense. Inventory Management Decisions: Sufficient Quantity, Good Quality, Minimize Cost Inventory Costing Methods: Specific Identification (SI), FIFO, LIFO, Weighted Average (WA) SI FIFO LIFO WA As it is Oldest Newest Average COGS As it is Newest Oldest Average EI Lower of Cost or Market (LCM)/Net Realizable Value (NRV): 1. Replaced by identical goods at a lower cost 2. Outdated or Damaged 𝑪𝑶𝑮𝑺 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 Higher ratio means faster turnover 𝟑𝟔𝟓 𝑫𝒂𝒚𝒔 𝒕𝒐 𝒔𝒆𝒍𝒍 = 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝑹𝒂𝒕𝒊𝒐 Lecture 8: Long-Lived Tangible Assets Long-lived assets are assets for use over 1 year, not for resale. Tangible long-lived assets are land (non-depreciable), depreciable assets such as building, equipment. Intangible long-lived assets are patents, copyrights (amortization) and trademarks, goodwill. Acquisition Cost includes purchase price and all necessary expenditures to prepare asset for its use. (Capitalizing the costs) Maintenance Costs: Ordinary Repairs Repair/Maintenance Expense Small & recurring expenditures Affects NI Do not increase productivity or extend useful life Extraordinary Repairs Capitalize as Asset Costs Large & infrequent expenditures Does not affect NI

May extend useful life and increase May inflate Assets productivity Depreciation Expense  Income Statement Acc Depreciation  Balance Sheet Dr Depreciation Expense 125 Cr Acc Depreciation 125 *DE is limited to the amt that reduce book value to residual value Depreciation Methods: 1. Straight Line 𝟏 𝑫𝑬 = (𝑪𝒐𝒔𝒕 − 𝑹𝒆𝒔𝒊𝒅𝒖𝒂𝒍 𝑽𝒂𝒍𝒖𝒆) × 𝑼𝒔𝒆𝒇𝒖𝒍 𝑳𝒊𝒇𝒆 Const every year 2. Units of Production 𝑨𝒄𝒕𝒖𝒂𝒍 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝑫𝑬 = (𝑪𝒐𝒔𝒕 − 𝑹𝒆𝒔𝒊𝒅𝒖𝒂𝒍 𝑽𝒂𝒍𝒖𝒆) × 𝑻𝒐𝒕𝒂𝒍 𝑷𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 Depends on output 3. Declining Balance 𝟐 𝑫𝑬 = (𝑪𝒐𝒔𝒕 − 𝑨𝒄𝒄 𝑫𝒆𝒑𝒓𝒆𝒄𝒊𝒂𝒕𝒊𝒐𝒏) × 𝑼𝒔𝒆𝒇𝒖𝒍 𝑳𝒊𝒇𝒆 High depreciation initially. Book value = Cost - Acc Depreciation Asset Impairment Loss: Due to Casualty, Obsolescence, Lack of demand for its output For an asset that cost $20,000, impairment loss at $14,000 Dr Acc Depreciation 2,000 Cr Equipment 2,000 Dr Impairment Loss (E) 14,000 Cr Equipment 14,000 Disposal of long-lived tangible asset: Dr Cash 1,000 Dr Acc Depreciation 200 Cr Equipment 1,000/1,300 Cr Gain on disposal 200 Dr Loss on disposal 100 Sales proceed > or < or = asset book value, Gain or Loss or No effect 𝑵𝒆𝒕 𝑹𝒆𝒗𝒆𝒏𝒖𝒆 𝑭𝒊𝒙𝒆𝒅 𝑨𝒔𝒔𝒆𝒕 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 = 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑵𝒆𝒕 𝑭𝒊𝒙𝒆𝒅 𝑨𝒔𝒔𝒆𝒕 Measures the sales dollars generated per one dollar invested in fixed assets Average Net Fixed Asset = (EFA +BFA)/2 Accelerated depreciation  Initial ↑ DE  ↓ NI ↑ Acc Depreciation  ↓ Book value (Compared with straight line) ↓ Book value  Gain, ↑ Book value  Loss (Maybe) Changes to Depreciation Estimates: (𝑩𝒐𝒐𝒌 𝑽𝒂𝒍𝒖𝒆 𝒂𝒕 𝒅𝒂𝒕𝒆) − (𝑹𝒆𝒔𝒊𝒅𝒖𝒂𝒍 𝑽𝒂𝒍𝒖𝒆 𝒂𝒕 𝒅𝒂𝒕𝒆) 𝑫𝑬 = 𝑹𝒆𝒎𝒂𝒊𝒏𝒊𝒏𝒈 𝑼𝒔𝒆𝒇𝒖𝒍 𝑳𝒊𝒇𝒆 𝒂𝒕 𝒅𝒂𝒕𝒆 Lecture 9: Liabilities & Time Value of Money Contingent Liabilities: Potential Legal Claim  recorded if the amount can be reliably estimated and payment for damages is probable Debt Guarantees  disclosed in the financial statements  If debtor is likely to default, record as liability 𝑻𝒐𝒕𝒂𝒍 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 𝑫𝒆𝒃𝒕 𝒕𝒐 𝑨𝒔𝒔𝒆𝒕𝒔 𝑹𝒂𝒕𝒊𝒐 = 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 Evaluate how much is the creditors are financing the assets 𝑻𝒊𝒎𝒆𝒔 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑬𝒂𝒓𝒏𝒆𝒅 𝑹𝒂𝒕𝒊𝒐 𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆 + 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑬𝒙𝒑𝒆𝒏𝒔𝒆 + 𝑰𝒏𝒄𝒐𝒎𝒆 𝑻𝒂𝒙 𝑬𝒙𝒑𝒆𝒏𝒔𝒆 = 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑬𝒙𝒑𝒆𝒏𝒔𝒆 Measures income generated for one dollar of interest expense Present and Future Value: The time value of money is the idea that money received today is worth more than money received one year later 𝑭𝒏 = 𝑷(𝟏 + 𝒓)𝒏 Compound interest is the interest paid in the current period on interest earned the previous period. 𝑷=

𝑭𝒏 (𝟏+𝒓)𝒏

(Term by Term)

The interest rate to find the present value is called the discount rate. Annuity is an investment that involves a series of identical cash flows at the end of each year. (Use table if possible) Lecture 10: Stockholders’ Equity A corporation is a separate legal entity. It is simple to become an owner, easy to transfer ownership, have limited liability.

Advantages of Equity Financing Advantages of Debt Financing - Not have to be repaid - Interest is tax deductible - Dividends are optional - Same stockholder control Types of authorized shares: Issued vs Unissued Issued shares: Outstanding shares are owned by stockholders, Treasury shares are previously owned by stockholders but are now repurchased by corporation. (No voting rights/div) (Contra-Equity) (-ve) Par Value is an arbitrary amount assigned to each share of authorized stock, usually a nominal amount. ($0.01) ≠ Market Value Some states do not require par value common stock. IPO  First time issuance of stocks Seasoned new issue  Subsequent new issuance * Transactions btw 2 investors do not affect accounting records Repurchase of Stocks: 1) Send signals that the stocks are worth acquiring 2) Purchase of other company 3) Employees stock option 4) ↓ outstanding share, ↑ per share earnings Issued 100,000 shares at $0.01 par value for $20 per share Dr Cash 2,000,000 Cr Common Stock 1,000 Cr Additional Paid-In Capital 1,999,999 Repurchase of stocks: 50,000 shares at $25 per share Dr Treasury Stock 1,250,000 Cr Cash 1,250,000 Reissuance of stocks: 5,000 shares at $28 per share Dr Cash 140,000 Cr Treasury Stock 125,000 Cr Additional Paid-In Capital (SE) 15,000 Cash Dividends: Dr Dividends (Declared) 20,000,000 Cr Dividends Payable 20,000,000 Dr Dividends Payable (Paid) 20,000,000 Cr Cash 20,000,000 Dr Retained Earnings (Closing) 20,000,000 Cr Dividends 20,000,000 Stock Dividends: Dr Retained Earnings 2,000,000 Cr Common Stock (Big & Small) 100,000 Cr Additional Paid-in Capital (Small) 1,900,000 Stocks dividends: 1) Reduce market price per share 2) Demonstrate commitment to stockholders 3) Signal strong financial performance in the future (↔฀par value, ↔฀ Total SE, ↔฀ percentage ownership) < 25% (Small): Record market value, > 25% (Big): Record par value Stock Splits: ↑no. of shares, ↓ par value, ↔฀ Retained Earnings 2-for-1: spilt 1 share into 2, par value half Preferred Stock has priority in liquidation and div distribution, diff voting rights (super/no) & fixed div compared to common stock. Cumulative Dividend Preferences: Any unpaid div from previous years must be paid before common dividends are paid. Company Statement of Stockholders’ Equity Preferred Common Additional RE Treasury Acc Other Stock Stock Paid-In Stock Comprehensive Capital Income $270 $504 $37,759$129,773 $(18,000) $(2524) BB 61,198 NI (238) Preferred Div 2 2691 Stock Issued (120) (5,880) Stock Redeemed $150 $506 $34,570$190,733 $(18,000) $(1,807) EB

𝑵𝑰 − 𝑷𝒓𝒆𝒇𝒆𝒓𝒓𝒆𝒅 𝑫𝒊𝒗 𝑨𝒗𝒈 𝑵𝒐. 𝒐𝒇 𝑶𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝑪𝒐𝒎𝒎𝒐𝒏 𝑺𝒕𝒐𝒄𝒌𝒔 𝑵𝑰 − 𝑷𝒓𝒆𝒇𝒆𝒓𝒓𝒆𝒅 𝑫𝒊𝒗 𝑹𝑶𝑬 = 𝑨𝒗𝒈 𝑪𝒐𝒎𝒎𝒐𝒏 𝑺𝒕𝒐𝒄𝒌𝒉𝒐𝒍𝒅𝒆𝒓𝒔′𝑬𝒒𝒖𝒊𝒕𝒚 Amt earned for one dollar invested 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑺𝒕𝒐𝒄𝒌 𝑷𝒓𝒊𝒄𝒆 𝑷/𝑬 = 𝑬𝑷𝑺 Value that investors place on a company’s common stock 𝑬𝑷𝑺 =

Lecture 11: Statements of Cash Flows Operating: Day-to-day activities with customers, suppliers & employees (+ve = successful, ↑ trend indicates growth & efficiency) Investing: Cash paid & received from buying and selling long-term assets (-ve = healthy) Financing: Cash received & paid for exchanges with lenders and stockholders (depends on details) Cash Equivalents: Highly liquid short-term investments of maturity (US Treasury Bill)

Lecture 12: Measuring and Evaluating Financial Performance Horizontal Analysis: 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 − 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒀𝒆𝒂𝒓 − 𝒕𝒐 − 𝒀𝒆𝒂𝒓 𝑪𝒉𝒂𝒏𝒈𝒆 (%) = × 𝟏𝟎𝟎% 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 Vertical Analysis: 𝝌 𝝌 × 𝟏𝟎𝟎% (𝑩. 𝑺) × 𝟏𝟎𝟎% (𝑰𝒏𝒄𝒐𝒎𝒆 𝑺𝒕𝒂𝒕𝒆𝒎𝒆𝒏𝒕)/ 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔 𝑵𝑺𝑹 Ratios: Profitability: Company’s ability to generate income (Net Profit Margin, Gross Profit %, Fixed Asset Turnover, ROE, EPS, P/E) Liquidity: If a company has sufficient current assets to repay liabilities (Receivables/Inventory Turnover, Days to Collect/Sell, Current Ratio) Solvency: Company’s ability to pay interest and repay debt (Debt-to-Assets, Times Interest Earned)...