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CPA > BEC Custom 8 > Flashcards

BEC Custom 8 Flashcards

1
Q

Working Capital

A

current assets - current liabilities

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2
Q

Lock-box system

A
  • firm leases post office boxes in areas where it has high volume of cash inflow by mail
  • customer remits payment to the local post office box
  • payments are collected and processed by the firm’s bank
  • bank notifies the firm of sources and amounts received
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3
Q

Pre-Authorized Checks

A

Customers authorize checks in advance for payment of their obligation

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4
Q

Concentration Banking

A

Accelerates the flow of funds from multiple local banks to a firm’s primary bank by regular, usually automatic, transfer of funds

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5
Q

Bank Draft

A

An order to pay drawn by a bank on itself or on a correspondent bank with which the issuing bank has an account

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6
Q

Cashier’s Check

A

One-time order to pay drawn on the issuing bank

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7
Q

Certified Check

A

Order to pay drawn on a depositor’s account that is certified to be paid by the bank

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8
Q

Money Order

A

Like a certified check, but usually limited in amount for each order

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9
Q

Traditional Materials Requirement Planning (MRP) system

A
  • supply push - goods are produced in anticipation of their sale
  • inventory is maintained at every level as buffers against unexpected demand
  • production based on long set-up time and long production runs; an inflexible system
  • impersonal relationships with suppliers
  • use of traditional cost accounting
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10
Q

Just-in-time inventory (JIT) system

A
  • system is based on on obtaining (on the supply side) and delivering (on the sell side) inventory just as and only when it is needed
  • demand pull - goods are produced only when and as needed by the end user
  • inventory reductions - production and purchasing occur only as needed, therefore inventories are reduced or eliminated
  • production in work centers (or cells) where workers operate multiple pieces of equipment or robotics are used
  • close working relationship with limited number of suppliers
  • quality is critical throughout the system
  • uses simplified cost accounting
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11
Q

Economic Order Quantity Formula

A

square root of 2 TO/C

T = total demand
O = per order cost
C = per unit carrying cost
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12
Q

Inventory Reorder Point

A

Reorder point objective is to determine the inventory quantity at which goods should be reordered

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13
Q

Inventory Reorder Point Formula

A

delivery time stock + safety stock

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14
Q

What do the terms “to” and “on” indicate in ratio analysis?

A

To divide the first item described by the second item described

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15
Q

Return on assets

A

net income / assets

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16
Q

When using balance sheet value(s) with income statement value(s), what do you have to do?

A

Get average beginning and ending values for the balance sheet value(s)

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17
Q

Accounts receivable turnover

A

(net) credit sales / average accounts receivable

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18
Q

Liquidity Measures

A

assess the ability of a firm to pay its obligations as they become due

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19
Q

Working Capital Ratio

A

current assets/current liabilities

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20
Q

Acid test ratio (quick ratio)

A

cash + receivables + marketable securities / current liabilities

21
Q

Defensive Interval Ratio

A

cash + receivables + marketable securities / average daily cash payments

22
Q

Times interest earned (TIE)

A

net income + interest expense + income tax expense / interest expense

23
Q

Times preferred dividends earned

A

net income / annual preferred dividend obligation

24
Q

Accounts receivable turnover

A
  • measures the number of times that accounts receivable are incurred and collected during a period
  • net credit sales / average accounts receivable
25
Q

of days’ sales in average receivables

A
  • measures the average number of days required to collect receivables
  • 360 days / accounts receivable turnover
26
Q

Inventory turnover

A
  • measures the number of times inventory is acquired and sold during a period
  • cost of goods sold / average inventory
27
Q

of days’ supply in inventory

A
  • measures the # of days inventory is held before it is sold or used
  • 360 / inventory turnover
28
Q

Operating cycle length

A
  • measures the average length of time to invest cash in inventory, convert the inventory to accounts receivable and collect the receivables
29
Q

Operating cycle length equation

A

of days’ supply in inventory + # of days’ sales in average receivables = # of days in operating cycle

30
Q

Gross Profit

A
  • measures dollar amount of sales after subtracting cost of goods sold
  • gross profit = sales - cost of goods sold
31
Q

Gross Profit Margin

A
  • measures how much of each sales dollar is available to cover operating expenses and provide profit
  • gross profit margin = gross profit / net sales
32
Q

Net Profit Margin

A
  • measures how much of each sales dollar ends up as net income
  • net profit margin = net income / net sales
33
Q

Return on total assets (also return on investment)

A
  • Measures the rate of return on total assets (or total investment) and indicates the efficiency with which invested resources are used
  • return on total assets (or return on investment) = (net income + interest expenses + interest tax savings) / average total assets (or average total investment)
34
Q

Return on owners’ equity

A
  • measures the rate of return on all shareholders’ investment
  • return on owners’ equity = net income / average stockholders’ equity
35
Q

Residual Income (RI)

A
  • Measures the excess of net income over the dollar amount of the required rate of return on average investment
  • dollar amount determined using the firm’s rate of return, normally it’s hurdle rate
36
Q

Required dollar return

A

Average invested capital x hurdle rate

37
Q

Residual Income formula

A

net income - required dollar return

38
Q

Economic Value Added (EVA)

A
  • measures economic profit

- cost associated with capital financing is cost of long-term debt and shareholders’ equity

39
Q

Economic Value Added Formula

A

earnings before interest - (rate of return x(long-term debt + shareholders’ equity))

40
Q

Earnings Per Share (EPS)

A
  • measures the income earned per average share of common stock
41
Q

Earnings Per Share (EPS) Formula

A

net income - preferred dividend (current) / weighted average # of C/S outstanding

42
Q

Price-Earning (P/E) ratio

A
  • measures the price of a share of common stock relative to its latest earnings per share
43
Q

P/E ratio formula

A

Market price for a common share / earnings per common share

44
Q

Debt to equity ratio

A
  • measures the relative amount of assets provided by creditors and shareholders
  • debt to equity ratio = total liabilities / total shareholders’ equity
45
Q

Owners’ Equity Ratio

A
  • shows the proportion of assets provided by shareholders

- owners’ equity ratio = shareholders’ equity / total assets

46
Q

Debt Ratio

A
  • shows the proportion of assets provided by creditors

- debt ratio = total liabilities / total assets

47
Q

Book value (BV) per common share

A
  • Measures the claim per share of common stock to assets at BV
  • BV per share C/S = common stock equity / # of common shares outstanding
48
Q

Book Value (BV) per preferred share

A
  • measures the claim per share of preferred stock to assets at BV
  • BV per share P/S = preferred stock equity + dividends in arrear / # of preferred shares outstanding

CPA (16 decks)

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