Financial Reporting Flashcards
How do you calculate a return on ratios?
Net income divided by…
ROA = NI / average assets
ROE = NI / Average total equity
Return on sales = EBIT / Sales (net)
How do you calculate turnover ratios?
Divide sales/COGS by what you are turning over
A/R turn = Sales (net credit) / Avg AR
Asset turn= Sales (net) / Avg total assets
Inventory turn = COGS / Avg inventory
A/P turn = COGS / Av. AP
How do you calculate Days Sales Outstanding?
Days in…. take 365 / turnover ratio answer
Cash conversion cycle is days in (A/R + inventory - A/P). How long it takes to convert outflow of cash to inflow of cash.
How do you calculate “to” ratios?
“to” means divide by
Debt to equity = Total Liab. / total equity
Debt to assets = Total Liab. / Total Assets
How do you calculate margin ratios?
divide by sales
Gross margin = (Sales - COGS) / sales
Profit margin = Net income / sales
How do you calculate times interest earned?
EBIT / interest expense (Earnings before interest and taxes)
What are the significant accounting policies included in disclosures?
- Inventory method
- Depreciation method
- Securities classified as cash and cash equivalents
- Basis for consolidation
What Risks and Uncertainties are included in MD&A?
- Nature of operations
- Use of estimates
- Certain significant estimates
- Current vulnerabilities due to significant concentrations
- Going concern assessment
What is the calculation for basic EPS?
- Net income - Preferred Stock Dividends / Weighted average shares of common
- EPS is calculated after taxes
- Preferred dividends based on declared non-cumulative. current year dividend if cumulative.
- Weighting based on number of months outstanding.
- Stock dividends and splits are assumed to be outstanding since inception.
What are the filing deadlines for 10Q?
40 days - large accelerated (over $700m) 40 days - accelerated (between $75 and under $700m) 45 days - non accelerated
What are the filing deadlines for form 10-K?
60 days - large accelerated (over $700m) 75 days - accelerated (between $75 and under $700m) 90 days - non accelerated
What financial statements are reported for consolidation at acquisition?
- Balance Sheet ( P + S + incremental FV)
- Income statement (P entire year)
- Statement of Retained Earnings (P only) Statement of Cash Flow (P entire year)
What three aspects of financial reporting is addressed by GAAP?
- Recognition -when it is recorded
- measurement - how it is recorded
- disclosure- anything not captured by the financial statements
What are the assumptions of accrual basis accounting?
EGUT
- Entity - business entity is separate and distinct from owner
- Going concern -business assumed to have an indefinite life
- Unit of measurement - things are measured in monetary unit in country in which it operates
- Time period - indefinite life of business is broken into smaller time frames years, quarters, months
What is form 10 Q?
- Quarterly reviewed not audited financial statements filed with SEC.
- In addition to most recent quarter end balance sheet company is required to present balance sheet for proceeding fiscal year.
- Filed within 40 days of quarter end for large accelerated filers
What is recognized for subsequent events?
- Recognize if event existed before balance sheet date. Example litigation ongoing before year end, settled in January recognize realization of assets.
- Don’t recognize, disclose: if arose after balance sheet date before issue.
- If entity is not SEC filer disclose subsequent event evaluation date.
- Disclose only required if the financial statements includes notes.
What are the disclosures about major customers?
Must disclose total revenue from each single customer that amounts to 10% or more of entities revenue and identify the segment. Customer name does not need to be disclosed.
What are entity wide disclosures?
If these are not clarified by segment reporting, must be disclosed:
- external revenue for products and services
- external revenue based on geographic area
- long lived assets based on geographic (foreign or domestic )
- major customers more than 10% of revenue
What are the disclosures for reportable segments?
- Factors used to identify operating segments
- general information about products and services of operating segment
- segment profit or loss
- segment revenues
- segment assets
- interest, revenue, and expense
- depreciation, depletion, and Amortization
What are the rules for a first time adopter of IFRS?
- Full retrospective application of all IFRS standards.
- All adjustments should be recognized directly in retained earnings, or if appropriate, another category of equity.
- Date of transition is the first reporting period that an entity produces full *comparative* F/S using IFRS. i.e. 12/31/2015 F/S, then date of transition is 01/01/14
How are unusual or infrequent items reported?
Two reporting options :
1) Income Statement - Above Income from Continuing Operations
2) Footnotes to Financial Statements No longer reported as extraordinary-and not net of tax
How are discontinued operations reported on the income statement?
Net of taxes.
Results of operations and gain/loss on disposal are reported as separate lines
What are the four concentration risks and when do they need to be disclosed?
- Volume of business with particular customer, supplier, lender, grantor or contributor (credit risk)
- Revenue from specific products, services, or other sources.
- Specific sources( suppliers) of services, materials, labor, licenses, or other rights used in operations.
- Marget or geographic areas of operations
Need to be disclosed:
- Concentration exists at B/S date
- Entity is vunerable due to risk of severe impact
- It is reasonably possible that events causing severe impact would occur
What are the different types of risk?
- Market risk is what happens when there is a substantial change in the particular marketplace in which a company competes.
- Credit risk is when companies give their customers a line of credit; also, a company’s risk of not having enough funds to pay its bills.
- Liquidity risk refers to how easily a company can convert its assets into cash if it needs funds; it also refers to its daily cash flow.
- Operational risks emerge as a result of a company’s regular business activities and include fraud, lawsuits, and personnel issues.
