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accounting 2 > Chapter 17 > Flashcards

Chapter 17 Flashcards

1
Q

what is the equation for current ratio

A

current assets
_____________
current liabilities

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2
Q

what is the equation for quick ratio

A

Quick assets
___________
current liablities

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3
Q

what is the equation for accounts recievable turnover

A

sales
_____
average accounts recievable

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4
Q

what is the equation for number of days sales in recievables

A

365
_______________
accounts recievable turnover

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5
Q

what is the equation for inventory turnover

A

cost of goods sold
_________________
average inventory

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6
Q

what is the equation for number of days sales in inventory

A

365
__________
inventory turnover

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7
Q

what is the equation for debt to equity ratio

A

total liabilities
_______________
total stockholder’s equity

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8
Q

what is the equation for times interest earned

A

income b4 income tax + interest expense
________________________________
interest expense

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9
Q

what is the equation for asset turnover

A

sales
_______
average total assets

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10
Q

what is the equation for return on total assets

A

net income + interest expense
________________________
average total assets

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11
Q

what is the equation for earnings per share on common stock

A

net income - preferred dividends
_________________________
shares of common stock outstanding

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12
Q

what is the equation for the price-earnings ratio

A

market price per share of common stock
________________________________
earnings per share on common stock

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13
Q

what is the equation for dividends per share

A

dividends on common stock
_____________________
shares of common stock outstanding

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14
Q

what is the equation for dividend yield

A

dividens per share of common stock
____________________________
market price per share of common stock

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15
Q

what are the liquidity measures

A 
current ratio
quick ratio
accounts receivable turnover
number of days sales in receivables
inventory turnover
number of days sales in inventory
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16
Q

what are the profitability measures

A 
asset turnover
return on total assets
return on stockholders equity
eps on common stock
price earnings ratio
dividends per share
dividend yield
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17
Q

what are the profitability measures

A 
asset turnover
return on total assets
return on stockholders equity
eps on common stock
price earnings ratio
dividends per share
dividend yield
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18
Q

who is interest in a companies liquidty and why

A

short-term creditors because they want to know if a company will be able to repay short term borrowings

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19
Q

who is interested in a companies solvency and why

A

longterm creditiors because they want to asses the companys ability to make periodic interest payments and to repay the face amount of debt at maturity

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20
Q

who is interested in a companies profitability and why

A

investors because they benefit from increases in the prce of the company’s shares and are intersted in evaluating the potential for the price of the cpmpany’s stock to increase whch depends on the compnays current and future earnings. so they focus on the companies ability to generate earnings

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21
Q

what is liquidity

A

a companies ability to convert assets into cash

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22
Q

what is solvency

A

a companys ability to make its periodic interest payments and repay the face amount of debt at maturity

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23
Q

what is profitability

A

a companies ability to generate earnings

24
Q

what does the current ratio measure

A

a firm’s ability to pay off its short-term liabilities with its current assets like cash, cash equivalents, and marketable securities can easily be converted into cash in the short term.

25
Q

what shows an improvement for the current ratio

A

a higher number

26
Q

what does the quick ratio measure

A

a firm’s ability to pay off its short-term liabilities with its quick assets like cash, accounts recievable, and short term investments can quickly be turned into cash

27
Q

what shows an improvement in the quick ratio

A

a higher number

28
Q

what does the accounts recievable turnover measure

A

the number of times per year that a business collects its average accounts receivable. The ratio is intended to evaluate the ability of a company to efficiently issue credit to its customers and collect funds from them in a timely manner.

29
Q

what shows an improvement in the accounts recievable turnover

A

a higher number

30
Q

what does the number of days sales in receivables tell you

A

an estimate of the time in days that the average accounts receivable was outstanding. this is often compared with a company’s credit terms to evaluate the efficiency of the collection of receivables

31
Q

what shows an improvement in the number of days in recievables

A

a lower number

32
Q

what does the inventory turnover measure

A

how many times a company has sold and replaced inventory during a given period

33
Q

what shows an improvement in inventory turnover

A

a higher number

34
Q

what does the number of days sales in inventory measure

A

the length of time it takes to purchase, sell, and replace the inventory

35
Q

what shows an improvement in the number of days sales in inventory

A

a smaller number

36
Q

what does the ratio of liabilities to stockholders equity measure

A

how much if the company is financed by debt and equity; to gauge the extent to which a company is taking on debt as a means of leveraging its assets

37
Q

what shows an improvement in the debt to equity ratio

A

a smaller number

38
Q

what does the times interest earned ratio measure

A

the risk that interest payments will not be made in earnings decrease; a company’s ability to meet its debt obligations; how many times a company can cover its interest charges on a pretax earnings basis

39
Q

what shows an improvement in the times interest earned ratio

A

a larger number

40
Q

what does the asset turnover measure

A

an indicator of the efficiency with which a company is using its assets to generate revenue; a company’s ability to generate sales from its assets

41
Q

what does the return on total assets measure

A

an indicator of how effectively a company is using its assets to generate earnings; what earnings were generated from invested capital (assets)

42
Q

what shows an improvement in the return on total assets

A

a larger percentage

43
Q

what does the return on stockholder’s equity measure

A

the rate of income earned on the amount invested by the stockholders

44
Q

what shows an improvement in the return on stockholder’s equity

A

a larger percentage

45
Q

what is the equation for earnings per share on common stock

A

net income - preferred dividends
__________________________
shares of common stock outstanding

46
Q

what does earnings per share measure

A

the share of profits that are earned by a share of common stock; how much money the company is making in profits per every outstanding share of stock. The higher the EPS is, the more money your shares of stock will be worth because investors are willing to pay more for higher profits

47
Q

what shows an inprovement in eps

A

a larger number

48
Q

what does the price-earnings ratio measure

A

a companys future earning prospects; what the market is willing to pay today for a stock based on its past or future earnings; The higher the number the higher the stock price is relative to share.Stock is trading at 25 times earnings. You’d have to pay $25 for $1 of earnings.

49
Q

what shows an improvement in the price-earnings ratio

A

typically a larger number, but When the rate gets too high, people start to think that the stock is overpriced that there is not enough earnings to support the price.

50
Q

what does the dividends per share ratio measure

A

the extent to which earnings are being distributed to common shareholders; the number of declared dividends issued by a company for every ordinary share outstanding. It is the number of dividends each shareholder of a company receives on a per-share basis

51
Q

what shows an improvement in dividends per share

A

a larger number

52
Q

what does the dividend yield measure

A

the rate of return to common stockholders from cash dividends, shows how much of the stockholders original investment is being paid back to them in dividends

53
Q

what shows an improvement in the dividend yield

A

a larger percentage

54
Q

what is times interest earned also called

A

the coverage ratio

55
Q

what is the current ratio also called

A

working capital rato

56
Q

what is the quick ratio also called

A

acid test ratio

accounting 2 (4 decks)

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