FAR Flashcards
Appreciation
when a currency becomes more valuable relative to another currency; a currency appreciates when you need more of another currency to buy a single unit of a currency
Depreciation (Exchange Rate)
when the value of a currency decreases relative to another currency; a currency depreciates when you need less of another currency to buy a single unit of a currency.
Dilluted EPS
is a measurement of a company’s earnings per share if all convertible securities were converted.
DILLUED EPS = NET INCOME - PREFERED DIV / WACSO + CONVERSION OF DILLUTIVE SECURITIES
EPS
A basic EPS takes the company’s net income minus any preferred dividends and divides it by the number of outstanding shares.
EPS = NET INCOME - PREFERED DIVIDENDS / END OF PERIOD COMMON SHARES OUTSTANDING
Out of the money stock options
Let’s say you are going to purchase a call option with a strike price of $102 for a stock that is currently trading at $100. If the stock remains below your $102 strike price until the expiration of the option then the option will expire out of the money. It means the option expires worthless and the buyer loses whatever they paid to purchase the option.
In the Money Stock Options
The phrase in the money (ITM) refers to an option that possesses intrinsic value. An option that’s in the money is an option that presents a profit opportunity due to the relationship between the strike price and the prevailing market price of the underlying asset.
An in-the-money call option means the option holder can buy the security below its current market price.
Form 10k
is an annual report that provides a comprehensive analysis of the company’s financial condition.
Form 10Q
Is a truncated version of Form 10-K that is filed quarterly. The form provides a view of the company’s ongoing financial condition throughout the year. The Form 10-Q must be filed for the first three quarters of the company’s fiscal year. The deadline to file is within 40 days from the end of the quarter. Unlike Form 10-K, the financial statements in Form 10-Q are unaudited, and the information required is less detailed.
Form 8K
is what a company uses to disclose major developments that occur between filings of the Form 10-K or Form 10-Q. Major company events that would necessitate the filing of a Form 8-K include bankruptcies or receiverships, material impairments, completion of acquisition or disposition of assets, or departures or appointments of executives.
Form 6K
is a form that foreign private issuers of securities are required to submit, pursuant to stated rules in the Securities Exchange Act of 1934. The Form 6-K, or “Report of Foreign Private Issuer Pursuant to Rules 13a-16 and 15d-16,” is administrated by the Securities and Exchange Commission (SEC). SEC Form 6-K is a cover page for foreign issuers making filings with the SEC.
Form 4oF
is a filing with the Securities and Exchange Commission (SEC) required for companies domiciled in Canada but that have securities registered in the United States. Form 40-F is an annual filing that companies must fill out
Stock Exercise
means purchasing the issuer’s common stock at the price set by the option (grant price), regardless of the stock’s price at the time you exercise the option.
Cumulative Effect of Accounting Change
means an adjustment, either positive or negative, to the opening balance of stockholders’ equity based on (i) the retrospective adjustment of the financial statements to either adopt a new accounting standard or to revise the application of an accounting standard, or (ii) the restatement of previously issued financial statements, all as disclosed in the audited consolidated financial statements of the Company or the Peer Company, as applicable, with all such determinations being made in accordance with GAAP.
In Cash Basis …
Add increases in current assets
Add decreases in current liablities
The conversion from cash basis revenue to accrual basis revenue incorporates the following adjustments
-Add ending accounts receivable.
-Subtract beginning accounts receivable.
-Subtract ending unearned (or deferred) revenue.
-Add beginning unearned (or deferred) revenue.
Cash and Cash Equivalents
refers to the line item on the balance sheet that reports the value of a company’s assets that are cash or can be converted into cash immediately. Cash equivalents include bank accounts and marketable securities, which are debt securities with maturities of less than 90 days. However, oftentimes cash equivalents do not include equity or stock holdings because they can fluctuate in value.
Goodwill
is an intangible asset that is associated with the purchase of one company by another. It represents the value that can give the acquiring company a competitive advantage.
The value of a company’s name, brand reputation, loyal customer base, solid customer service, good employee relations, and proprietary technology represent aspects of goodwill.
Net realizable value (NRV)
is a valuation method, common in inventory accounting, that considers the total amount of money an asset might generate upon its sale, less a reasonable estimate of the costs, fees, and taxes associated with that sale or disposal.
Bonds that a company intends to hold to maturity are …
valued at amortized cost (initial investment +/− amortization of discount or premium). In this case, the bonds were issued at par, so amortized cost is equal to the par value. As the investment is held until maturity, the fair value of the bonds is irrelevant.
Depreciation Expense
is part of income from continuing operations
Equity
Capital Stock + retained earnings
Checks Outstanding
when the payee doesn’t cash or deposit the check. This means it doesn’t clear the payor’s bank account and doesn’t appear on the statement at the end of the month. Since the check is outstanding, this means it is still a liability for the payor.
For an equity security that has been classified as “trading”, any unrealized gains or losses resulting from the change in fair value will be recorded directly into
the income statement.
with recourse
the factor can demand money back from the company that transferred receivables if it cannot collect from customers.
without recourse
the factor takes on all the risk of uncollectible receivables. The company that transferred receivables has no liability for uncollectible receivables.
Book Value per Common Share Formula
Common Stockholders Equity / Total Shares Outstanding
Treasury Stock Formula for Additional Shares
Number of Shares - (number of shares x exercise price / avg market price) = additional shares outstanding
The treasury stock method presumes that option proceeds can be used to reacquire shares on the open market and that any option requirement will be satisfied by the issuance of new shares to be held in the treasury.
How should the gains and losses from changes in the fair value of the following types of foreign currency transaction hedges be reported in the financial statements?
Gains and losses from changes in fair value of foreign currency transaction hedges classified as fair value hedges are accounted for in earnings as are other fair value type hedges. Gains and losses from changes in the fair value of foreign currency transaction hedges used to hedge a net investment in a foreign operation are reported in other comprehensive income as part of the cumulative transaction adjustment.
scrip dividend
refers to a certificate that shareholders are given as an option to receive dividends as cash at a later date or to receive them as extra shares.
A stock dividend (less than 20-25%
transfers the FMV of the stock dividend at declaration date from retained earnings to capital stock and paid-in capital. There is no effect on total stockholders’ equity because all transfers take place within stockholders’ equity.
liquidating dividend
is a return of capital (which decreases additional paid-in capital) and not a distribution of earnings (which decreases retained earnings).
Debt to Equity Ratio Formula
Total Debt / Total Shareholders Equity
Inventory Turnover Ratio
COGS / Average Inventory
accounts receivable turnover ratio equals
sales (net) divided by average accounts receivable.
The fair value of a nonfinancial asset is the value at its
highest and best use.
quick ratio
current assets excluding inventory and prepaid expenses and dividing by current liabilities.
Return of Assets
Net Income / Total Assets
Days sales in accounts receivable
Ending A/R (net) /( Sales Net / 365)
Average total assets
Asset Turnover / Avg Total assets
Asset T: Net Sales / Avg Total Assets
Avg Total A: Net Sales / Total Asset Turnoverf
Asset Turnover
Net sales / Average total assets
What effect would the sale of a company’s trading securities at their carrying amounts for cash have on each of the following ratios?
Trading securities are both current assets and quick assets. If they are sold for their carrying value, then both total current assets and total quick assets remain constant since one type of current asset and quick asset is traded for another. Thus, both the current ratio and the quick ratio would be unaffected by the sale of trading securities.
Depletion Base Formula
Cost to Purchase Property
Plus: Development Cost
Plus: Any estimated restoration costs
Less: Residual (Salvage) Value of Land
price index
= ending inventory at current year cost / ending inventory at base year cost
Market Ceiling
net selling price less cost to complete and dispose
Market Floor
market ceiling less normal profit margin
To measure how effectively an entity employs its resources, an analyst calculates inventory turnover by:
dividing average inventory into / cogs
days in inventory
Ending inventory / (Cost of goods sold/365 days)
AFS - Impairment and ECL
Unrealized gain = FV > Amort
Impairment = FV < AMORT
ECL = PV - AMORT
HTM - impairment and ecl
impairment loss = PV < Amort
ECL = PV - AMORT
HTM - impairment and ecl
impairment loss = PV < Amort
ECL = PV - AMORT
