1B Financial Statements For-Profit Flashcards
Current ratio (working capital ratio)
current assets
___________
current liabilities
Ratio higher than 1 is favorable because company can pay it’s debts.
Quick ratio (acid-test ratio)
Cash and equivalents + marketable securities + AR, net
_____________________
Total current liabilities
Debt to total asset
Total liabilities
_____________
Total assets
Higher ratio is less favorable indicating higher risk and more leverage
Debt to equity
Total liabilities
______________
Total equity
lower ratio is more favorable and indicates less risk
AR turnover
Net credit sales
_____________________
AR less Allowance for doubtful accounts
Higher ratio is favorable because receivables are more liquid.
Days sales outstanding (average collection period in days)
365
_____________
AR Turnover
Inventory turnover
COGS
_________________
Average Inventory
Days in inventory
365
_________________
Inventory turnover
Total asset turnover
Net sales
__________________
Average total assets
PE ratio
Stock price per share
______________
Basic EPS
lower ratio is favorable (greater than zero), indicating the company needs few years to earn amount investors paid.
Book value per share
Common shareholders’ equity
______________________
# of share of common stock outstanding (exclude treasury stock)
Profit margin ratio
Net Income after interest and taxes
_____________________________
Net Sales
Gross Margin
Gross profit
____________
Net Sales
Return on assets (ROA)
Net Income
____________________
Average total assets
Return on equity (ROE)
Net income after interest and taxes
________________________________
Average common stockholders’ equity
Return on sales
Net income before interest income, interest expense and taxes
___________________________________
Net Sales
Earnings per share
Net income - Current year preferred dividends
______________________________________
Weighted average number of common shared outstanding
Dividend payout
Cash dividend
__________________
Net Income
Asset turnover ratio
Net Sales
_______________
Avg Total Assets
Times interest earned
EBIT
______________
Interest Expense
Free cash flow
Net Operating Profit after taxes + Depreciation - Capital expenditures - change in working capital
Operating Cash Flow ratio
Cash flow from operations
_______________________
Ending current liabilities
Statement of Other Comprehensive Income
Net Income $55,000
Other Comprehensive Income
Unrealized Holding Gain (net of tax) 15,000
Comprehensive Income $70,000
Other comprehensive income, net of tax means only items from the current year are included. OCI is closed out to Accumulated OCI.
Items included in other comprehensive income
- Impairment on AFS deb securities or equity securities (before ASU 2016-01), if a portion was recognized in OCI and not earnings
- Unrealized holding gains and losses for AFS debt securities
- Unrealized gains and losses from debt securities transferred from HTM to AFS
- Gains and losses from cash flow hedge derivative instruments
- Gains and losses on intra-entity foreign currency transactions where settlement is not expected soon
- Gains and losses from foreign currency transactions from effective hedges in foreign entity investments.
- Translation adjustments from foreign currency using current rate method
- Gains and losses from pension or post-retirement benefit plans
- Prior service costs or credit adjustments from pensions/benefit plans
- Transition assets or obligations from pension/benefit plans not recognized as part of net periodic benefit or cost.
ASC 230
Statement of Cash Flows
Non-Cash items disclosed
- Conversion of debt to equity
- Conversion of preferred to common shares
- Acquisition of assets through capital leases
- Acquisition of LT assets by issuing notes payable
- Acquisition of non-cash assets (patents, licenses) in exchange for shares or debt.
Cash Equivalents
Treasury bills, commercial paper and money market funds
Operating activities
day to day cash operating income and expenses
Investing activities
acquisition and disposal of non-current assets
Financing activities
methods that a company raises capital (stock, borrowings)
ASU 2016-18 Restricted Cash
Must present restricted cash on Statement of Cash Flows or in notes to financial statements.
This change is retrospective
ASU 2016-15 Classification of cash receipts and payments
Operating:
- portion of zero coupon debt attributable to interest
- cash payments in excess of contingent consideration on business combinations
Investing:
- Cash payments soon after acquisition to settle contingent liability
- Cash proceeds from settlement of corporate owned life insurance policies
Financing:
- Cash payments for debt prepayment/extinguishment
- zero coupon debt attributable to principal
- contingent consideration on business up to acquisition date
CF Direct Method: Cash collected from customers
Sales + change in AR
CF Direct Method: Interest received
Interest revenue + change in interest receivable
CF Direct Method: Dividends received
Dividend revenue + change in dividend receivable
CF Direct Method: cash paid to employees
sales and wages expense + change in salary and wages payable
CF Direct Method: cash paid to suppliers
COGS + change in inventory + change in AP
CF Direct Method: Interest paid
interest expense + change in interest payable + change in discount and/or premium on bonds
CF Direct Method: Income taxes paid
Income tax expense + change in Income tax payable
CF Direct Method: Rent paid
Rent Expense + change in prepaid rent
Discontinued operations eligibility
must represent a major shift that has or will have a major affect on the entity’s operations and financial result.
(disposal of major line of business, major geographical area, major equity method investment or other major parts of the entity)
Failing to meet going concern assumption
negative working capital
ASU 2014-15 Disclosure of going concern
Required to evaluate and disclose in annual and interim financials
doubt about going concern is alleviated by management’s plan
Disclosure must include:
- conditions that raise substantial doubt
- Management’s evaluation of the significant conditions.
- Management’s plan to alleviate doubt
doubt about going concern is NOT alleviated by management’s plan
Disclosure must include:
- statement about substantial doubt
- Conditions that cause the substantial doubt
- Management’s evaluation of the significant conditions.
IFRS going concern requirements
Disclosures are required when management is aware of material uncertainties that cast doubt over entity’s ability to continue as going concern
- assessment period is at least on year
