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FAR > 1B Financial Statements For-Profit > Flashcards

1B Financial Statements For-Profit Flashcards

1
Q

Current ratio (working capital ratio)

A

current assets
___________
current liabilities

Ratio higher than 1 is favorable because company can pay it’s debts.

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2
Q

Quick ratio (acid-test ratio)

A

Cash and equivalents + marketable securities + AR, net
_____________________
Total current liabilities

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3
Q

Debt to total asset

A

Total liabilities
_____________
Total assets

Higher ratio is less favorable indicating higher risk and more leverage

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4
Q

Debt to equity

A

Total liabilities
______________
Total equity

lower ratio is more favorable and indicates less risk

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5
Q

AR turnover

A

Net credit sales
_____________________
AR less Allowance for doubtful accounts

Higher ratio is favorable because receivables are more liquid.

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6
Q

Days sales outstanding (average collection period in days)

A

365
_____________
AR Turnover

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7
Q

Inventory turnover

A

COGS
_________________
Average Inventory

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8
Q

Days in inventory

A

365
_________________
Inventory turnover

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9
Q

Total asset turnover

A

Net sales
__________________
Average total assets

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10
Q

PE ratio

A

Stock price per share
______________
Basic EPS

lower ratio is favorable (greater than zero), indicating the company needs few years to earn amount investors paid.

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11
Q

Book value per share

A

Common shareholders’ equity
______________________
# of share of common stock outstanding (exclude treasury stock)

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12
Q

Profit margin ratio

A

Net Income after interest and taxes
_____________________________
Net Sales

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13
Q

Gross Margin

A

Gross profit
____________
Net Sales

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14
Q

Return on assets (ROA)

A

Net Income
____________________
Average total assets

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15
Q

Return on equity (ROE)

A

Net income after interest and taxes
________________________________
Average common stockholders’ equity

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16
Q

Return on sales

A

Net income before interest income, interest expense and taxes
___________________________________
Net Sales

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17
Q

Earnings per share

A

Net income - Current year preferred dividends
______________________________________
Weighted average number of common shared outstanding

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18
Q

Dividend payout

A

Cash dividend
__________________
Net Income

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19
Q

Asset turnover ratio

A

Net Sales
_______________
Avg Total Assets

20
Q

Times interest earned

A

EBIT
______________
Interest Expense

21
Q

Free cash flow

A

Net Operating Profit after taxes + Depreciation - Capital expenditures - change in working capital

22
Q

Operating Cash Flow ratio

A

Cash flow from operations
_______________________
Ending current liabilities

23
Q

Statement of Other Comprehensive Income

A

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.

24
Q

Items included in other comprehensive income

A
  1. Impairment on AFS deb securities or equity securities (before ASU 2016-01), if a portion was recognized in OCI and not earnings
  2. Unrealized holding gains and losses for AFS debt securities
  3. Unrealized gains and losses from debt securities transferred from HTM to AFS
  4. Gains and losses from cash flow hedge derivative instruments
  5. Gains and losses on intra-entity foreign currency transactions where settlement is not expected soon
  6. Gains and losses from foreign currency transactions from effective hedges in foreign entity investments.
  7. Translation adjustments from foreign currency using current rate method
  8. Gains and losses from pension or post-retirement benefit plans
  9. Prior service costs or credit adjustments from pensions/benefit plans
  10. Transition assets or obligations from pension/benefit plans not recognized as part of net periodic benefit or cost.
25
Q

ASC 230

A

Statement of Cash Flows

26
Q

Non-Cash items disclosed

A
  1. Conversion of debt to equity
  2. Conversion of preferred to common shares
  3. Acquisition of assets through capital leases
  4. Acquisition of LT assets by issuing notes payable
  5. Acquisition of non-cash assets (patents, licenses) in exchange for shares or debt.
27
Q

Cash Equivalents

A

Treasury bills, commercial paper and money market funds

28
Q

Operating activities

A

day to day cash operating income and expenses

29
Q

Investing activities

A

acquisition and disposal of non-current assets

30
Q

Financing activities

A

methods that a company raises capital (stock, borrowings)

31
Q

ASU 2016-18 Restricted Cash

A

Must present restricted cash on Statement of Cash Flows or in notes to financial statements.

This change is retrospective

32
Q

ASU 2016-15 Classification of cash receipts and payments

A

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
33
Q

CF Direct Method: Cash collected from customers

A

Sales + change in AR

34
Q

CF Direct Method: Interest received

A

Interest revenue + change in interest receivable

35
Q

CF Direct Method: Dividends received

A

Dividend revenue + change in dividend receivable

36
Q

CF Direct Method: cash paid to employees

A

sales and wages expense + change in salary and wages payable

37
Q

CF Direct Method: cash paid to suppliers

A

COGS + change in inventory + change in AP

38
Q

CF Direct Method: Interest paid

A

interest expense + change in interest payable + change in discount and/or premium on bonds

39
Q

CF Direct Method: Income taxes paid

A

Income tax expense + change in Income tax payable

40
Q

CF Direct Method: Rent paid

A

Rent Expense + change in prepaid rent

41
Q

Discontinued operations eligibility

A

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)

42
Q

Failing to meet going concern assumption

A

negative working capital

43
Q

ASU 2014-15 Disclosure of going concern

A

Required to evaluate and disclose in annual and interim financials

44
Q

doubt about going concern is alleviated by management’s plan

A

Disclosure must include:

  1. conditions that raise substantial doubt
  2. Management’s evaluation of the significant conditions.
  3. Management’s plan to alleviate doubt
45
Q

doubt about going concern is NOT alleviated by management’s plan

A

Disclosure must include:

  1. statement about substantial doubt
  2. Conditions that cause the substantial doubt
  3. Management’s evaluation of the significant conditions.
46
Q

IFRS going concern requirements

A

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

FAR (18 decks)

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