Ch 5 Appendix + IFRS insights Flashcards
Ratio analysis
Expresses mathematical relationship among pieces of
Selected financial statement data, in a percentage, rate,
Or a simple proportion
Ratio
Expresses mathematical relationship btw one quantity
And another
4 major types of ratios
1 Liquidity ratios
2 activity ratios
3 profitability ratios
4 coverage ratios
Liquidity ratios
Measures of company’s short term ability to pay
It’s maturing obligations
Activity ratios
Measures how effectively the company uses its assets
Profitability ratios
Measures the degree of success or failure of a given
Company or division in a given period of time
Coverage ratios
Measures degree of protection for long-term creditors
And investors
3 major liquidity ratios?
1 current ratio
2 quick ratio
3 current cash debt coverage
3 major activity ratios?
1 accounts receivable turnover
2 inventory turnover
3 asset turnover
6 major profitability ratios?
1 profit margin on sales 2 return on assets 3 return on common stock equity 4 earnings per share 5 P/E ratio 6 payout ratio
5 major coverage ratios?
1 debt to assets 2 times interest earned 3 cash debt coverage 4 book value per share 5 free cash flow
4 IFRS and GAAP Similarities of balance sheet
1 Same title
2 require disclosures of changes in accounting policies,
Judgements and key assumptions that result in adjustments
Of assets and liabilities
3 provide comparative prior period information
prepared and presented annually
4 require presentation of non controlling interests
On equity section of balance sheet
4 Differences btw IFRS and GAAP for balance sheets
1 GAAP must follow SEC regulations that require specific
Lin items
2 IFRS current assets are listed in reverse order of liquidity
3 IFRS uses different terminology
4 Use of term “reserve” is discouraged in GAAP but not in
IFRS
