Accounting Equations Flashcards
Return on equity
Net Income / Average stockholders’ equity
rule of thumb: > 10% increasing is healthy, risky business expected to be higher (lower)
debt-to-equity ratio
total liabilities / total stockholders’ equity
Change in Retained Earnings Formula
RE (beg) + Net Income (Loss) - Dividends = RE (end)
Net Income Formula (bottom line)
= Revenues - Expenses
owner financing level
stockholders equity / total liabilities and equity
creditor financing level
total liabilities / total liabilities and equity
contributed capital (aka paid-in capital)
= common stock + additional paid in capital - treasury stock
operating income/profit
Gross Margin - Operating Expenses
Gross profit
Revenue - cost of goods sold
current ratio
current asset / current liabilities
(generally prefer >1 but less than 2)
Net Working Capital
= current assets - current liabilities
(measure to assess liquidity)
accounting/balance sheet formula
assets = liabilities + equity
equity formula
equity = contributed capital + earned capital
straight line depreciation
asset cost / estimated useful life
cash flow from operations
cash flow from operations =
net income + depreciation expense - change in operating assets + change in operating liabilities
Operating Cash Flow formula
Net Income +/ Adjustments = Cash Flow from Operating Statements
change in cash = ?
