Ch. 16 (5) Flashcards
the income statement (aka …) is …
(statement of earnings) the financial statement that shows a firm’s bottom line - profit (or loss) after costs, expenses, and taxes
revenue is …
the value of what is received for goods sold, services rendered, and other financial sources
most revenue comes from … but there could be …
sales, other sources such as rents received
the cost of goods sold (or ..) is a …
(cost of goods manufactured)
measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale
how to get gross profit/gross margin
net sales - cost of goods sold
gross profit is …
how much a firm earned by buying (or making) and selling merchandise
operating expenses are …
the costs involved in operating a business
list the first four examples of operating expenses
rent, salaries, supplies and utilities
list the last three examples of operating expenses
insurance, research and amortization of equipment
which three major activities is a cash flow statement tied to?
operations, investing and financing
cash flow is simply …
the difference between cash coming in and cash going out of a business
a ratio analysis is …
the assessment of a firm’s financial condition and performance through calculations and interpretation of financial ratios developed from the firm’s financial statements
financial ratios are especially useful in …
analyzing the actual performance of the company compared to its past performance, current financial objectives, and compared to other firms within its industry
liquidity ratios measure …
c company’s ability to turn some assets into cash to pay its short-term debts
the current ratio is …
the ratio of a firm’s current assets to its current liabilities
the acid-test or quick ratio measures …
the cash, marketable securities (such as stocks and bonds) and receivables or a firm, compared to its current liabilities
leverage (debt) ratios measure …
the degree to which a firm relies on borrowed funds in its operations
profitability (performance) ratios measure …
how effectively a firm’s managers are using its various resources to achieve profits
Profitability Ratios: three of the more important ratios are …
earnings per share (EPS)
return on sales
return on equity
activity ratios tell us …
how effectively management is turning over inventory
the inventory turnover ratio measures …
the speed with which inventory moves through a firm and gets converted into sales
