Exam 2 Flashcards
Securities that are held with the intent of selling them sometime in the future.
Available-for-sale securities
Financial statements that present the assets and liabilities controlled by the parent company and the total revenues and expenses of the subsidiary companies.
Consolidated financial statements
Ownership of more than 50% of the common stock of another entity.
Controlling interest
An accounting method in which the investment in common stock is recorded at cost and revenue is recognized only when cash dividends are received.
Cost method
Investments in government and corporation bonds.
Debt investments
An accounting method in which the investment in common stock is initially recorded at cost, and the investment account is the adjusted annually to show the investors equity in the investee.
Equity method
Amount for which a security could be sold in a normal market.
Fair value
Debt securities that the investor has the intent and ability to hold to maturity.
Held to maturity securities
A group of stocks and/or debt securities in different corporations held for investment purposes.
Investment portfolio
Investments that are not readily marketable or that management does not intend to convert into cash within the next year or operating cycle, whichever is longer.
Long-term investments
A method of accounting for certain investments that requires that they be adjusted to their fair value at the end of each period.
Mark-to-market
A company that owns more than 50% of the common stock of another entity.
Parent company
Investments that are readily marketable and intended to be converted into cash within the next year or operating cycle, whichever is longer.
Short-term investments (marketable securities)
Investments in the capital stock of corporations.
Stock investments
A company in which more than 50% of its stock is owned by another company.
Subsidiry (affiliated) company
Securities bought and held primarily for sale in the near term to generate income on short-term price differences.
Trading securities.
A measure used to evaluate a company’s liquidity and short-term debt-paying ability; calculated as Current assets/Current liabilities
Current ratio
A measure of the liquidity of inventory. Measures the nuber of times average inventory was sold during the period; computed as Cost of goods sold/Averge inventory
Inventory turnover
A measure of the average number of days that inventory is held; computed as 365 days/Inventory turnover
Days in inventory
A measure of the liquidity of receivables; computed as Net credit sales/Average net accounts receivable
Accounts Receivable Turnover
The average number of days that receivables are outstanding; calculated - 365 days/Accounts receivable turnover
Average collection period
A measure of the percentage of total financing provided by creditors; computed as Total liabilities/Total assets
Debt to assets ratio
A measure of a company’s solvency and ability to meet interdty psyments as they come due; calculated as the sum of Net income + Interest expense + Income tax expense/Interest expense
Times interest earned
A measure of solvency. Cash remaining from operating activities after adjusting for capital expenditures and dividends paid. Net cash provided by operating activities - Capital expenditures - Cash dividends
Free cash flow
A measure of the dollars of net income earned for each dollar invested by the owners; computed as Income available to common stockholders (Net income - Preferred dividends)/Average common stockholders’ equity
Return on common stockholders’ equity
A profitability measure that indicates the amount of net income generated by each dollar of assets; calculated as Net Income/Average total assets
Return on assets
A measure of the net income generated by each dollar of net sales; computed as Net income/Net sales
Profit margin
A meaure of how efficiently a company uses its assets to generate net sales; computed as Net sales/Average total assets
Asset turnover
Gross profit expressed as a percentage of net sales; computed as Gross profit/Net sales
Gross profit rate
The net income earned by each share of outstanding common stock; computed as Net income - preferred dividends/Weighted-average common shares outstanding
Earnings per share
A comparison of the market price of each share of common stock to the earnings per share; computed as the Market price per share/Earning per share
Price-earnings ratio
A measure of the percentage of earnings distributed in the form of cash dividends; calculated as Cash dividends paid on common stock/Net income
Payout ratio
Securities that are held with the intent of selling them sometime in the future.
Available-for-sale securities.
Use of an accounting principle in the current year that is different from the one used in the preceding year.
Change in accounting principle.
The sum of net income and other comprehensive income items.
Comprehensive income.
The disposal of a significant component of a business.
Discontinued operations.
A technique for evaluating a series of financial statement data over a period of time to determine the increase (decrease) that has taken place, expressed as either a dollar amount or a percentage.
Horizontal analysis
Borrowing money at a lower rate of interest than can be earned by using the borrowed money; also referred to as a trading on the equity.
Leveraging
Measures of the short-term ability of the company to pay its maturing current obligations and to meet unexpecgted needs for cash.
Liquidity ratios
Measures of the income or operating success of a company for a given period of time.
Profitability ratios
A measure of income that usually excludes items that a company considers unusual or non-recurring.
Pro forma income
Indicates the level of full and transparent information that is provided to users of the financial statements.
Quality of earnings
The mathematical relationship between one quantity and another. The relatioship may be expressed either as a percentage, a rate, or a simple proportion.
Ratio
A technique for evaluating financial statements that expresses the relationship between selected financial statement data.
Ratio analysis
Measures of the ability of a company to survive over a long period of time, particularly to pay interest as it comes due and to repay the balance of debt at its maturity.
Solvency ratios
The most likely level of income to be obtined by a company in the future.
Sustainable income
Borrowing money at a lower rate of interest than can be earned by using the borrowed money; also referred to as leveraging.
Trading on the equity
Securities bought and held primarily for sale in the near term to generate income on short-term price differences.
Trading securities
A technique for evaluating financial statement data that expresses each item in a financial statement as a percentage of a base amount.
Vertical analysis
A method of preparing a statement of cash flows that shows operating cash receipts and payments. It is prepared by adjusting each item in the income statement from the accrual basis to the cash basis.
Direct method
Cash flow activities that include (a) obtaining cash from issuing debt and repaying the amounts borrowed and (b) obtaining cash from stockholders, repurchasing shares, and paying dividends.
Financin activities
Net cash provided by operating activities adjusted for capital expenditures and cash dividends paid.
Free cash flow
A method of preparing a statement of cash flows in which net income is adjusted for items that do not affect cash, to determine net cash provided by operating activities.
Indirect method
Cash flow activities that include (a) purchasing and disposing of investments and property, plant, and equipment using cash and (b) lending money and collecting the loans.
Investing activities
Cash flow activities that include the cash effects of transactions that generate revenues and expenses and thus enter into the determination of net income.
Operating activities
A basic financial statement that provides information about the cash receipts, cash payments, and net change in cash during a period, resulting from operating, investing, and financing activities.
Statement of cash flows
