Quizlet (22) - finance PDF

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Principles of Managerial Finance, 13th Edition (Lawrence J. Gitman, Chad J. Zutter) Chapter 3: Financial Statements and Ratio Analysis Изучать в сети: quizlet.com/_58zm8f 1.

5 categories of financial ratios

(1.)Short-term solvency/liquidity ratios (2.)Long-term solvency/liquidity ratios (3.)Asset management/turnover ratios (4.)Profitability ratios (5.)Market value ratios

2.

ability to service debts

the ability of a firm to make the payments required on a scheduled basis over the life of a debt

3.

accounts receivable

amounts to be received in the future due to the sale of goods or services using credit cards

4.

activity ratios

measure the speed with which various accounts are converted into sales or cash— inflows or outflows

5.

audited financial statements

financial statements that have been examined by an independent auditor to determine whether they fairly represent the financial condition of the business

6.

average age in inventory average number of days' sales in inventory

7.

average collection period

the average amount of time needed to collect accounts receivable 8.

9.

average inventory

average payment period

balance sheet

benchmarking

a type of cross-sectional analysis in which the firm's ratio values are compared to those of a key competitor or group of competitors that it wishes to emulate

12.

book value

the net value of fixed assets

13.

combined analysis

combination of both time series and crosssectional analysis; assesses the trend in the behavior of the ratio in relation to the trend for the industry

14.

cost of goods sold

the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies

15.

costs of goods sold (COGS)

the direct costs attributable to the production of the goods sold in a company

16.

crosssectional analysis

comparison of different firms' financial ratios at the same point in time; involves comparing the firm's ratios to those of other firms in its industry or to industry averages

17.

current assets

short-term assets, expected to be converted into cash within 1 year or less

18.

current liabilities

short-term liabilities, expected to be paid within 1 year or less

19.

current rate (translation) method

technique used by U.S.-based companies to translate their foreign-currency-denominated assets and liabilities into dollars, for consolidation with the parent company's financial statements, using the year-end (current) exchange rate

20.

current ratio

the average of the beginning and the ending inventory of a particular time period

a measure of liquidity calculated by dividing the firm's current assets by its current liabilities

average inventory = (beginning inventory + ending inventory) / 2

21.

debt position

the average amount of time needed to pay accounts payable

the amount of other people's money being used to generate profits

22.

degree of indebtedness

measures the amount of debt relative to other significant balance sheet amounts

23.

dividends per share (DPS)

the dollar amount of cash distributed during the period on behalf of each outstanding share of common stock

average payment period = accounts payable / average purchases per day 10.

11.

summary statement of the firm's financial position at a given point in time

earnings available for common stockholders

final net profit after paying dividends to preferred stockholders

earnings before interest and taxes (EBIT)

same thing as operating profit

Financial Accounting Standards Board

the accounting profession's rule-setting body, which authorizes generally accepted accounting principles (GAAP)

Financial Accounting Standards Board (FASB) Standard No .2

mandates that U.S.-based companies translate their foreign-currency-denominated assets and liabilities into dollars, for consolidation with the parent company's financial statements; this utilizes the current rate method of conversion

28.

financial leverage

the magnification of risk and return through the use of fixed-cost financing, such as debt and preferred stock

29.

fiscal year

a 12-month financial cycle

30.

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)

24.

25.

26.

27.

31.

34.

interest expense

the interest accrued on money borrowed

35.

inventories

raw materials, work in process (partially finished goods), and finished goods held by the firm

36.

inventory turnover measures the activity, or liquidity, of a firm's inventory

37.

letter to stockholders

typically, the first element of the annual stockholders' report and the primary communication from management

38.

liquidity

a firm's ability to satisfy its short-term obligations as they come due; a common precursor to financial distress and bankruptcy is low or declining liquidity

39.

long-term debt

debt for which payment is not due in the current year

40.

marketable securities

very liquid short-term investments e.g. U.S. treasury bills or certificates of deposit

41.

net profit (earnings) after taxes

final profit after all costs and expenses, including interests and taxes, are accounted for

42.

net profit (earnings) before taxes

total profit after interest expenses are subtracted from operating profit but before taxes are deducted

43.

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

44.

operating expenses

all of the expenses of operating the business that are associated with the product e.g. selling expense, general and administrative expense, lease expense, and depreciation expense, etc.

45.

operating profit

gross profit - operating expenses

46.

paid-in capital in excess of par

the amount received from stockholders in excess of the par value

gross profit

the excess of net sales over the cost of goods sold gross profit = sales revenue - COGS 32.

income statement

provides a financial summary of the firm's operating results during a specified period

33.

industry average

ratio analysis data values based on average ratios for particular industries; examples - Almanac of Business and Industrial Financial Ratios -Dun & Bradstreet's Industry Norms and Key Business Ratios, RMA Annual Statement Studies -Value Line

47.

personal liquidity ratio

measures the percent of annual debt obligations that an individual can meet using current liquid assets Liquidity Ratio = Total Liquid Assets / Total Current Debts

48.

49.

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

quick (acidbest ) ratio

a measure of liquidity calculated by dividing the firm's current assets minus inventory by its current liabilities; a better measure of overall liquidity only when a firm's inventory cannot be easily converted into cash 50.

ratio analysis

involves methods of calculating and interpreting financial ratios to analyze and monitor the firm's performance; ratio analysis on its own is probably most useful in highlighting areas for further investigation

51.

retained earnings

the accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends

52.

sales revenue

the income to a business during a period of time from the sale of goods or services

53.

seasonality

a regularly repeating pattern of sales centered on a particular period of the year

54.

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

55.

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

56.

statement of stockholders' equity

shows all equity account transactions that occurred during a given year

57.

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

58.

time-series analysis

evaluation of the firm's financial performance over time using financial ratio analysis

59.

total asset turnover indicates the efficiency with which the firm uses its assets to generate sales...