Term
| Liquidity and Efficiency Ratios Include: |
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Definition
Current Ratio
Acid Test (quick) Ratio
Accounts Receivable Turnover
Inventory Turnover
Days Sales Uncollected
Days Sales Inventory
Total Asset Turnover |
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Term
| Is an increase or decrease favorable in a Current Ratio? |
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Definition
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Term
| Is an increase or decrease favorable in a Acid Test Ratio? |
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Definition
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Term
| Is an increase or decrease favorable in a Accounts Receivable Turnover? |
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Definition
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Term
| Is an increase or decrease favorable in a Inventory Turnover |
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Definition
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Term
| Is an increase or decrease favorable in a Days Sales Uncollected |
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Definition
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Term
| Is an increase or decrease favorable in a Days Sales Inventory? |
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Definition
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Term
| Is an increase or decrease favorable in a Total Asset Turnover? |
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Definition
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Term
| What are the Solvency Ratios? |
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Definition
Debt Ratio
Equity Ratio
Times Interest Ratio |
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Term
| Is an increase or decrease favorable in a Debt Ratio? |
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Definition
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Term
| Is an increase or decrease favorable in a Equity Ratio |
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Definition
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Term
| Is an increase or decrease favorable in a Times Interest Earned Ratio? |
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Definition
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Term
| What are the Profitability Ratios? |
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Definition
Profit Margin Ratio
Gross Margin Ratio
Return on Common Stockholders Equity
Return on total Assets
Basic Earnings Per Share |
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Term
| Is an increase or decrease favorable in a Profit Margin Ratio? |
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Definition
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Term
| Is an increase or decrease favorable in a Gross Margin Ratio? |
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Definition
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Term
| Is an increase or decrease favorable in a Return on Common Stockholders Equity? |
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Definition
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Term
| Is an increase or decrease favorable in a Return on total assets? |
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Definition
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Term
| Is an increase or decrease favorable in a Basic Earnings Per Share? |
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Definition
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Term
| What are the Market Prospects Ratios? |
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Definition
Dividend Yield
Price Earnings Ratio |
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Term
| Is an increase or decrease favorable in a Dividend Yield? |
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Definition
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Term
| Is an increase or decrease favorable in a Price Earnings Ratio? |
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Definition
X
Too many varying factors |
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Term
| What are the disadvantages of Bonds? |
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Definition
| Requires cash payments and can decrease return on equity |
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Term
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Definition
| represents the amount that must be paid to bondholders at the maturity date regardless of the amount the bond was sold for |
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Term
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Definition
| Rate of interest printed on the bond and represents the interest rate that issuers will pay to the bond holder (calculated based on par value) |
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Term
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Definition
| Represents interest rate that bondholders are willing to accept |
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Term
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Definition
The issue price of the bond is GREATER than the par value.
Occurs when the contract rate is GREATER than the market rate (considered an adjunct libability account) |
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Term
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Definition
The issue price of the bonds is LESS than the par value
Occurs when the contract rate is LESS than the market rate
(Also called Contra Liability account) |
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Term
| Amortization of Bond Discount/Premium |
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Definition
Systematic reduction of th premium/discount over the life of the bond.
(The difference between what you sold it for and what you wanted to sell it for) |
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Term
| Unamortized Premium/Discount |
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Definition
Amount of the premium or discount that remains to be decreased.
Equals the balance of the premium or dicount on bonds accounts |
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Term
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Definition
The net value of the bonds payable account and any related account (premuim or dicount on bonds)
CV of bond issued at premium= par value + unamortized premium = bonds payable + premium on bonds acct. balance
CV of a discounted bond= par value - unamortized discount = Bonds Payable - Dicount on Bonds accout balance |
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Term
| Carrying Value is always equal to the __________________ at the date of issue |
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Definition
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Term
| CV is always euql to the _____________________ at the date of maturity. |
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Definition
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Term
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Definition
| Reduces the discount or premium on bonds by the same amount of every interest payment date. (method to record amortization of discount/premium) |
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Term
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Definition
Refers to the amount of interst actually being paid to the bond holders
Par Value x Contract rate of interest = Annual Interest Paid to Bond Holders
If interst is paid more frequenty than once a year, we need to adjust the interest calculation for the portion that we are paying. (i.e.: Semi-annually- 6/12 or monthly - 1/12) |
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Term
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Definition
| Total cash paid to bondholders over the life of the bond- cash received from the bondholders = total interest expense |
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Term
| What are the 4 Financial Statements? |
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Definition
Income Statement
Balance Sheet
Statement of Cash Flows
Statement of Owners Equity |
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Term
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Definition
Reports revenues - expenses = Net Income/Loss
Records a Period of Time
Prublically Traded Company (quarterly Statements) |
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Term
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Definition
Reports Assets = Liability + Equity
Records 1 Date in time |
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Term
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Definition
Cash activities (operating, investing, financing)
Reports a period of time |
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Term
| Statement of Owners Equity |
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Definition
Reports investments, withdrawls, net income
Reports how total equity changes over time
Reports a period of time |
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Term
| What are the 4 Building blocks? |
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Definition
Liquidity and Efficiency
Solvency
Profitability
Market Expectations |
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Term
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Definition
Ability to meet the short term obligations and to efficiently generate revenues.
Inventory, accounts receivable, notes receiveable |
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Term
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Definition
| Ability to generate future revenues and meet long term obligations |
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Term
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Definition
Ability to generate profits
Make sure it's profitable to attract and retain future investors/creditors
(ability to generate rewards/profits) |
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Term
| Market Expectations (prospects) |
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Definition
Ability to generate positive market expectations
Refers to/ more relevant to public traded companies |
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Term
| Financial Statments are Visually comparitive in the ways that: |
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Definition
- At least 2 years of info is provided
-Always lists most recent year first (which is the most relevent year to look at) |
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Term
| What are the 4 standards of Comparisons (or benchmarks) to financial Statements? |
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Definition
Intra-Company Comparison
Inter-Company Comparison
Industry Comparisons
Rules-of-Thumb |
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Term
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Definition
| Benchmarking current year data to previous years data within the same company |
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Term
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Definition
| Competitors- benchmark current period data to that of our major competitors |
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Term
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Definition
Comparing/benchmarking current period data to industry averages
(includes companies w/i our industry of all sizes)
Averages are usually available in published form |
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Term
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Definition
General Guidelines that provide a general base or an assumption for a specific analysis component
Give a place to start |
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Term
| What are the Types of Analysis? (tools) |
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Definition
Vertical Analysis
Ratio Analysis
Horizontal Analysis |
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Term
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Definition
| Provides a comparison of 1 Financial Statement item across years/periods |
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Term
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Definition
Provides a comparison of each financial Statement item within a given period to a base amount from that same period.
Balance sheet- Base amount is TOTAL ASSETS
Income Statement- base amount is TOTAL REVENUES OR NET SALES |
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Term
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Definition
| Provides a comparison of the relationship between different financial statement items |
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Term
| Horizontal Analysis: Dollar Change |
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Definition
How much does the F/S item change from last period to this period?
Analysis Period amount-base period amount |
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Term
| Horizontal Analysis: Percent Change |
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Definition
| Helps us to determine how significant was that dollar change. Express the $ change as a % of the abse period amount |
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Term
| Horizontal Analysis: Trend Analysis |
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Definition
Expresses each year of data provided for 1 financial statment item as a % of the oldest period/years amount provided
trends are plotted and graphed |
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Term
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Definition
tells us:
How many short term assets does the company have to pay for every $1 of short term debt
Higher (liquidity) ratio suggests strong liquidity and ability to pay short term obligations
General guidelines suggests that a $2:$1 ratio is considered a strong ratio |
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Term
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Definition
Limits amount of current assets we include
How many dollars of HIGHLY liquid assets are abailable to pay $1 of current liabilities
General guideline suggests that a ratio of $1:$1 is acceptable |
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Term
| Accounts Receivable Turnover |
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Definition
How often can you turn A/R into cash?
How many times the A/R is collected within the Accounting period (determined by how many months are reported on accounting report)
Higher A/R turnover indicates HIGHER efficiency
Higher liquidity means you're most likely to meet debt |
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Term
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Definition
How well do we manage our inventory?
Efficiency of Managment
COGS represents amount merchandise sold for accounting period
Inventory Represents amount merchandise not sold at certain point in time
How many times the inventory balance is turned intoa sale (NOT turned into cash) within that accounting period
Higher turnover ratio indicates how efficiently inventory is managed |
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Term
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Definition
If a sale is uncollected, it was a sale made on credit that cash hasn't been received yet.
A/R / sales
What is the proportion of sales still outstanding? (not collected yet)
How many days it takes to turn A/R balance into cash
True liquidity
the more liquid the faster you turn into cash
Fewer days= more liquid |
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Term
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Definition
How many days does it take each customer to pay?
How long it takes you to pay
the lower the more liquid the more favorable |
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Term
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Definition
How many days it takes to sell inventory balance (usually stays around 50,000)
whether sold on credit or for cash
How many days sales stay in inventory account
More liquid = fewer days it takes to sell inventory
How many times $1 of assets are used to produce revenues (or the amot of revenues generated from $1 of assets)
The higher the turnover, the more efficiently assets are used to generage sales |
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Term
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Definition
Proportion of assets financed by creditors (debt)
THe more debt, the more have to pay back alter
the higher the debt ratio the riskier that particular company is
the riskier the compay the more likely they won't be able to pay back debt later
Combination of all debs divided by assets |
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Term
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Definition
Computed on common-size balance sheet
Tells me the proportion of assets financed by the owners
the higher the ratio, the LESS risky that particular company is
If ratio is > 1 the risk of nonpayment increases
If ratio is < 1 the risk of nonpayment decreases |
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Term
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Definition
Measures how many times interest expense can be paid with the earnings (net income)
Helps creditor determine how well you can make your payments b/c its how much they'll actually make
the higher the ratio the more likely they'll be able to pay interest payment (less risky)
2x or greater- more likely to get additional loans |
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Term
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Definition
Computed on Common size income statment
Measures how much money is left after every $1 of sales (5% = 5cents of every $1)
The higher ratio indicates more prifitability (better at managing prices and expenses by higher profits) |
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Term
| Gross Margin (profit) Ratio |
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Definition
Computed on common size income statment
amt left from every $1 of sales after paying for the merchandise solde (amt left from every $1 of sales to pay operating expenses)
Higher ratio indicates higher profitability from sale of goods |
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Term
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Definition
How much profit do we generate for every $1 of assets ownned
the more profit generated from asets= more profitable company (more favorable)
Higher return = more favorable condition |
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Term
| Return on common stockholders equity |
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Definition
Amount of profit generated from $1 of owners investments (and retained earnings)
Higher ratio is favorable)
Higher equity multiplier indicates amount of debt the larger = the more debt |
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Term
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Definition
only relevant for CORPORATIONS
Amount of profit earned for every share of common stock outstanding
Higher EPS is favorable
already computed and reported on I/S of publically traded companies |
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Term
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Definition
How much dividends deos cmopany pay for 1 share of stock?
Gives us return on current value of the stock (if dividends are paid)
Do'nt have to pay dividends ($0)
helps identify whether a stock is an "income" stock or "growth" stock
If the stock is an "income" stock (pays dividends) the higher the dividend yield, the better (more favorable)
If the stock is growth stock- pays little or no dividends) Expect market price to increase in value rather than receive dividends |
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Term
| Purpose of Managerial accounting |
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Definition
| activity that provides both financial and nonfinancial information to an organizations managment to assist, them to planning and controlling activities |
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Term
| Difference between Managerial financing and financial |
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Definition
Managerial:
INTERNAL
VERY FLEXIBLE
DECISION MANAGERS ARE TRYING TO MAKE- ONLY IDEAS RELEVANT
QUICK REACTION, TIMELY
NON-MONETARY TERMS
Financial:
EXTERNAL
NOT FLEXIBLE
HAVE TO FOLLOW GAAP; MORE STRUCTURED
HAVE TO BE AUDITED
NOT ABAILABLE TILL AFTER AUDIT IS COMPLETED AFTER THE YEAR; NOT TIMELY
ASSETS, LIABILITIES, EQUITY ARE EXPRESSED IN DOLLARS
MONETARY TERMS |
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Term
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Definition
refers to the process of setting goals and making a plan to achieve these goals
goals are usualy set- long term goals
medium and short term goals are set after long-term goals are set they help to reach long term goalsa nd are more focused |
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Term
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Definition
The process of monitoring the planning decisions and evaluating organizations activities and employees
looks at efficiency
because price is important to the customers, and costs set the price, managerial accounting is important to help keep costs down while also paying attention to quality. higher to help set an appropriate price |
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Term
| Classification Categories of Managerial Accounting |
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Definition
By Behavior
By Traceability
By Controllability
By Function
By Relevance |
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Term
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Definition
| Does the cost change with changes in volume of activity (within a relevant range) |
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Term
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Definition
Can a cost be traced to a specific cost object or does it benefit more than 1 cost object?
Must first specify the cost object |
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Term
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Definition
Who controls the Cost?
Heiarchy of management |
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Term
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Definition
Is the cost relevant for future decisions?
Outsroucing
getting rid of departments or products |
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Term
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Definition
Is cost capitalized (recorded as an asset such as inventory) or expensed as incurred
Manufacturing company
person who buys things and refurbish them
rent depends on what expense is for |
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Term
By Behavior:
Variable Cost
FIxed Cost
Mixed Cost |
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Definition
Variable Cost- A cost that changes in direct proportion to a change in a volume of activity
Raw material, labor needed
increase by same incriments
Fixed Cost:
A cost that does NOT change in total as the volume of actively changes (within a relevant range)
rent
Mixed Cost:
A cost with botha fixed and a variable component |
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Term
Traceability:
Direct Cost:
Indirect Cost: |
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Definition
Direct Cost: Costs that are traceable to a single cost object
-If easy for you to say what costs go into making each
-Raw materials, assembly line workers wages
-Typically considered variable cost
Indirect Cost: Cost that benefits more than 1 cost object/ cannot be easily separated or traced to 1 cost object |
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Term
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Definition
| a cost that was incurred in the past that cannot be changed or avoided |
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Term
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Definition
| a cost that requires future outlay (payment) of cash (cost that hasn't been incurred yet) |
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Term
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Definition
| Potential benefit thats lost by choosing/ alternative from 2 or more options |
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Term
| Product Cost (by function) |
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Definition
| capitalized as an asset; any cost that is necessary and integral to the production of a product |
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Term
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Definition
| Raw materials used to make the product (that can be traced to a specific product) |
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Term
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Definition
| labor costs used to make the product (can trace the cost to a specific product) |
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Term
| Indirect Product cost (overhead costs) |
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Definition
| -Costs necessary to make product but cannot easily be traced to 1 specific product |
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Term
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Definition
| expenditure that is identified more w/ time period than w/ a finished product. (costs not pertaining to the manufacturing processs) |
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Term
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Definition
| Raw materials available to be used in production (purchased but not used in production yet) |
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Term
| Goods in process inventory |
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Definition
| records all product costs of products that have been started but not cmopleted (includes raw materials used, direct labor used and all of factory overhead costs incurred (indirect product cost)) |
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Term
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Definition
| records all product cost of products that have been finished but not sold yet. |
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Term
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Definition
| Records all product costs of products that have been cmopleted and sold (can sell on credit or cash immediately, but either way it can be recorded as sold) |
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Term
| Asset Accounts on a Common Size Balance Sheet |
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Definition
Cash
A/R
Inventory
Plant Assets, net
Total Assets |
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Term
| Liability Accounts on a Common Size Balance Sheet |
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Definition
A/P
N/P
Common Stock
Retained Earnings
Total Liabilities and Equity |
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Term
| Accounts on a Common Size Income Statement |
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Definition
Net sales
-COGS
=Gross Profit
-Selling expenses
-General and Administrative Expenses
=Net Income |
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Term
| On a common size balance sheet you get the percentage of everything by dividing everything by |
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Definition
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Term
| On a common size income statement, you divide everything by: |
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Definition
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