Chapter 3 Flashcards
acid- test ratio
a financial ratio used as a measure of short term liquidity also known as the quick ratio
cash+securities+receivables/ current liabilities
liquidity
the ability of a firm to pay its short term obligations
current ratio
indicator of the overall liquidity of a company.
current assets/current liabilities
additional paid in capital
the investment of stockholders in excess of the amounts assignable to capital stock as stated or par value. As well as other invested capital such as the sale of treasury stock.
debt ratio
an indicator of a company’s ability to repay its debt
total liabilities/total assets
(the higher the debt ratio the higher the likelihood that some of the debt might not be repaid
asset mix
the proportion of total assets in each asset category
asset category/total assets
asset turnover
an overall measure of a company’s efficiency. (is the company using its assets efficiently to convert them into revenue.
sales/total assets
return on assets
used to calculate revenue the assets are generating
net income/ total assets
return on equity
measures the % return on the actual investment made
net income/stock holders equity
Notes added to the financial statement
- summary of accounting policies
- additional information to support summary totals
- Info. about items that do not meet the recognition criteria but is still useful for decision makers
- Supplementary schedules required by FASB or SEC (inventory valuation method, depreciation methods, accounting changes, special revenue recognition practices)
book to market ratio
reflects the difference between the balance sheet value and actual market value of a company
book equity/ market equity
callable obligation
a debt instrument that is 1) payable or demand and 2) has a specific due date but can be payable on demand
capital stock
the portion of the amount invested by stockholders that is designated as par or stated value
common stock
class of stock that represents the basic ownership of a company. Allows shareholders the right to vote and to dividends if declared (dividends are secondary to preferred)
working capital
current assets- current liabilities; measures liquidity
Treasury Stock
Stock that is issued and then bought back
trading securities
debt and equity securities that are bought with the intent of selling them in the near future to generate profits from short term changes in the market prices
subjective acceleration clause
a clause in a debt agreement that identifies general conditions that can make a debt payable on demand BUT violations of the agreement can not be determined objectively
Stock Holders Equity
total owners equity
sinking fund
assets that have been accumulated in order to repay a loan… savings account
Retained Earnings
Amount of earnings made restricted by board members (for dividend payments)
Other Comprehensive Income
Part of SHE.
Showing changes in owners equity exclusive of net income and contributions by and distribution to owners
objective acceleration clause
a clause in a debt agreement that identifies specific conditions that will cause the debt to be callable immediatly
loan covenant
provisions in a loan agreement restricting the borrower or allowing for some monitoring of the borrowers actions
