exam 1 Flashcards
common types of current assets
cash, investments, receivables, inventories, and prepaid expenses
long term investments
investments in stocks and bonds of other corp. that are held for more than a year, long term assets such as land or buildings that a company is not currently using to operate, and long term notes receivable
property, plant, and equipment
assets with long useful lives currently used in operating the business
intangible assets
goodwill, patents, copyrights, and trademarks
current liabilities
obligations that the company is to pay within the operating cycle
long-term liabilities
company will pay after the operating cycle; include bonds payable, mortgages payable, long-term notes payable, lease liabilities, and pension liabilities
profitability ratios (earnings per share)
- measures the operating success of a company for a given period of time
- measures income earned on each share of common stock
- (net income - preferred dividends)/weighted outstanding shares
working capital
- measure of liquidity
- curent assets - current liabilities
current ratio
- more reliable measure of liquidity
- current assets / current liabilities
- determines if a company can reach its near term obligations
- result is the amount of assets the company has compared to every dollar of liabilities
solvency ratios
- measures the ability of the company to survive over a long period of time
- solvency is the company’s ability to pay interest as it’s due and to repay the balance of a debt
debt to assets ration
- total liabilities / total assets
- measures the percentage of total financing provided by creditors
- higher percentage means more risky because it shows how much they rely on debt
free cash flow
- describes the net cash provided by operating activities after adjusting for capital expenditures and dividends paid
- net cash - capital expenditures - cash dividends (or whatever it was spent on)
GAAP
- generally accepted accounting principles
- set of accounting standards
SEC
- securities and exchange commission
- oversees financial markets and accounting standard setting bodies
FASB
- financial accounting standards board
- primary accounting standard setting body
IASB
- international accounting standards board-
- issues standards called IFRS (international financial reporting standards)
relevance
acct info has relevance if it makes a difference in a business decision and has predictive value and confirmatory value
predictive value
helps provide accurate expectations about the future
confirmatory value
confirms or corrects prior expectations
materiality
- company specific aspect of relevance
- an item is material when its size makes it likely to influence an investor or creditor
faithful representation
- information accurately depicts what really happened
- must be complete, (nothing important has been omitted) neutral, (is not biased toward one position or another) and free from error
comparability
different companies use the same accounting principles
consistency
a company uses the same accounting principles and methods from year to year
verifiable
info is verifiable when independent observers, using the same methods, obtain similar results