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ACC 628 > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

NOPAT =

A

NOPBT - (Tax on operating profit)

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2
Q

NOA =

A

OA - OL

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3
Q

What is included in operating assets?

A

AR, PPE, other, etc etc, goodwill, deferred income tax

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4
Q

Liabilities to Equity =

A

Total L / Total E

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5
Q

Gross Profit Margin =

A

Gross Profit / Sales

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6
Q

Inventory Turnover =

A

COGS / Ave. Inventory

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7
Q

Average Inventory Days Outstanding

A

Inventory / Ave. Daily COGS

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8
Q

Useful Life

A

Depreciable Asset Cost / Depreciation Expense

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9
Q

Percent Used Up

A

Acc. Dep. / Depreciable Asset Cost

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10
Q

RNOA =

A

1) NOPAT / Ave. NOA

2) NOPM * NOAT

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11
Q

What are the components of Dupont ROE Disaggregation

A

1) Profit Margin
2) Asset turnover
3) financial leverage

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12
Q

ROA =

A

NI / Ave. Total Assets

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13
Q

What are the components of ROA?

A

1) profit margin

2) asset turnover

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14
Q

ROE =

A

1) NI / Ave. Equity

2) RNOA + (FLEV * Spread)

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15
Q

What is the dupont roe disaggregation equation?

A

= (NI/sales) + (Sales/Ave. Total Assets) * (Ave Total Assets / Ave. SE)

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16
Q

What affects NOPM?

A

1) amt gross profit
2) amt operating expenses
3) level of competition and company’s willingness/ability to control costs

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17
Q

What are the GAAP limitations to ratio analysis?

A

1) measurability
2) non-capitalized costs
3) historical costs

18
Q

What does “realized” mean?

A

seller’s net assets increase

19
Q

What does “earned” mean

A

seller has performed duties under sales agreement

20
Q

When is revenue recognized?

A

realized/realizable and earned

21
Q

What are arguments against revenue recognition?

A

1) rights of return
2) consignment sales
3) continuing involvement by seller
4) contingency sales

22
Q

What are the usual components of restructuring costs?

A

1) employee severance or relocation costs
2) asset write-downs
3) other

23
Q

How are restructuring expenses regulated to create more transparency?

A

1) formal restructuring plan approved by BoD
2) must identify relevant employees and notify them
3) must disclose aspects of liability in footnotes

24
Q

What are ways in which accounting quality is diminished?

A

1) unintentional errors
2) one-time events or proforma disclosures
3) deliberate manager intervention
4) reliable numbers that aren’t predictive

25
Q

What are the components of accounting equality?

A

1) reliability
- - what it says is what actually happened
2) relevance
- - (numbers can be used for forecasting)

26
Q

How can you assess accounting quality?

A

1) read auditor reports
2) read footnotes and compare to peers
3) examine changes in accounting policies
4) compare ratios over time and against competitors
5) identify nonrecurring items

27
Q

How is AR reported?

A

at net realizable value

28
Q

How is allowance for doubtful accounts calculated?

A

aging analysis

29
Q

How is allowance for doubtful accounts disclosed?

A

– analysis must be disclosed along with allowance for doubtful accounts

30
Q

How is AR analyzed & what info do you get?

A

1) AR turnover
2) average collection period
= receivables quality and asset utilization

31
Q

What are reasons for decreased AR turnover?

A

1) deteriorating collectability
2) seller extends credit terms
3) seller takes on riskier customers
4) seller increases allowance provision

32
Q

How are inventories reported?

A

at lower of cost or market

33
Q

What are the financial statement effects of lower of cost or market?

A

1) decreased assets

2) increased expenses (COGS)

34
Q

Why would a gross profit ratio decrease?

A

1) stale product line
2) new competitors
3) economic decline
4) overstocked inventory
5) increased manufacturing costs
6) change in product mix

35
Q

What do you need to estimate to calculate depreciation?

A

1) useful life
2) salvage value
3) depreciation rate

36
Q

When do you impair an asset (other than goodwill)

A

when sum of undiscounted future cash flows is less than net BOOK VALUE of asset

37
Q

When is a gain recognized?

A

when sale price exceeds BOOK VALUE

38
Q

What is the double declining balance method?

A

2* constant rate *net value

39
Q

What level of equity ownership constitutes a passive investment?

A

less than 20 percent

40
Q

What level of equity ownership constitutes a significant influence investment?

A

20-50 percent

41
Q

What level of equity ownership constitutes a controlling investment?

A

50 percent or less than 50 with licensing or legal agreements

42
Q

What are the limitations of consolidated statements?

A

1) consolidated income doesn’t imply that parent company receives cash
2) difficult to compare across other companies
3) segment profitability affected by transfer pricing and overhead allocation

ACC 628 (2 decks)

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