Exam 4 Flashcards
noncash activities
activities that do not directly pay or receive cash
example of noncash activities
A company that takes out a loan for a piece of equipment
What are the 3 types of cashflows
1.Operating
2.Investing
3.Financing
Operating Activities include…
-The calculation of and including net income
-Normal operations
Examples of Operating Activities include (6 things)
-Change in AR, Inventory, Prepaids
-Change in AP and Unearned Revenue
-Interest Receivables
-Gains and Losses
-Depreciation Expense
-Interest Expense
Investing activities include…
-Purchase or sale of PP&E
-Company investing in someone else
Examples of investing activities include… (4 things)
-Change in PP&E
-Change in Intangible Assets
-Change in short term investments
-Change in Notes Receivables (buying a bond)
Financing Activities include…
-Contribution from or distributions to owners
-Someone else investing in the company (someone invests in me)
Examples of financing activities include…(4 things)
-Dividends
-Common, Preferred, Treasury Stock
-Bonds Payable
-Short term and long-term notes payable
Classification and (+-) for:
Collection of AR
Operations, (+)
Classification and (+-) for:
Issuance of Bonds
Financing,(+)
Classification and (+-) for:
Purchase of new equipment
Investment, (-)
Classification and (+-) for:
payment of dividends
Financing , (-)
Classification and (+-) for:
Receipt of interest on loan receivables
Operating,(+)
Classification and (+-) for:
Receipt of principal of loan receivable
Investing (+)
Formula for calculating total change in cash:
Operating + Investing + Financing
Ending Balance of Cash formula:
Beginning balance of cash + Total change in cash
In the Statement of cash flows, where is Net Income located? (Operating, Investing, Financing)
Operating Activities
Quality of Income Ratio:
Cash flow from operations / Net Income
Do you want the Quality of income ratio to be low or high?
High
What does the quality of income ratio explain?
how much each dollar of NI generates
What is the SEC?
Securities and exchange commission
-govern publicly traded companies
-enforce the GAAP
what is GAAP?
Generally accepted accounting principals
-written by FASB
what is the FASB?
Financial Accounting Standards Board
-wrote the GAAP
what is the AICPA?
American Institute of Certified Public Accountants
what is the PCAOB?
Public Company Accounting Oversight Board
-oversee accounting professionals who provide independent audit reports for publicly traded companies
Common external professional services include: (3)
-Auditors
-Tax Professionals
-Advisors
What are the 3 conditions for fraud to occur?
- Incentive
- Opportunity
- Rationalization
Net Profit Margin
Net Income / Net Sales
Total Asset TO
Net Sales / Avg Total Assets
Return on Assets
Net Income / Average Total Assets
Financial Leverage
Avg Total Assets / Avg Total SE
Return on Equity
Net Income / Avg Total SE
- Want to be low
DuPont Model
(Net Profit Margin * Total Asset TO) * Financial Leverage = ROE
Quick Ratio
(Cash and Cash equivalents + Net AR + Short Term Investments) / Current Liabilities
Cash Ratio
Cash and Cash Equivalents / Current Liabilities
-Want it to be high
Time Interest Earned
(Net Income + Interest Expense + Income Tax Expense) / Interest Expense
-Want it to be high
Cash Coverage Ratio
Cash flow from Operating activities / Interest Paid
-Want it to be high
Debt to equity ratio
Total Liabilities / Total Stockholder Equity
- want this to be low
