chapter three Flashcards
Generally Accepted Accounting Principles (GAAP)
The practice and procedure guidelines used to prepare and maintain financial records and reports; authorized by the Financial Accounting Standards Board (FASB)
Public Company Accounting Oversight Board (PCAOB)
is charged with protecting the interests of investors and furthering the public interest in the preparation of informative, fair, and independent audit reports
stockholder’s reports
annual report that publicly owner corporations must provide to stockholder; they are required if the company has more than $5 million in assets and 500 or more stockholders
the four key financial statements
the income statement, the balance sheet, the statement of stockholder’s equity and the statement of cash flows
income statement
provides a financial summary of the firms’s operating results during a specified period
balance sheet
The statement balances the firm’s assets (what it owns) against its financing, which can be either debt (what it owes) or equity (what was provided by owners)
ratio analysis
Involves methods of calculating and interpreting financial ratios to analyze and monitor the firm’s performance.
cross-sectional analysis
Comparison of different firms’ financial ratios at the same point in time; involves comparing the firm’s ratios with those of other firms in its industry or with industry averages.
benchmarking
A type of cross-sectional analysis in which the firm’s ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate.
current ratio
dividing current assets by current liabilities
quick (acid-test) ration
(current assets-inventory)/current liabilites
activity ratios
measures the speed with which various accounts are converted into sales o cash, or inflows or outflows
inventory turnover
cost of goods sold/inventory
average age of inventory
inventory turnover/365
average collection period
accounts receivable/average sales per day(annual sales/365)
