Financial Statement Analysis Flashcards
Develop skills in financial statement analysis, reporting standards, income statement, balance sheet, cash flow statement, financial analysis techniques, inventories, long-lived assets, income taxes, and non-current liabilities.
Define:
Credit migration risk
The risk that a bond issuer’s creditworthiness deteriorates leading investors to believe that the risk of default is higher.
aka downgrade risk
Define:
Accounts payable
When a business owes its vendors for goods and services which were purchased but which have not yet been paid.
Define:
Accounts receivable
Amounts that the company is owed for things that have been sold or returned.
Define:
Accounts receivable turnover
- Net Credit Sales / Average Accounts Receivable
- Measure of how efficient the company is with its AR.
Define:
Accrued expenses
Expenses incurred but not yet paid (at end of an accounting period), this results in a liability.
May also be called accrued liabilities.
Some examples would be salaries or rent that have been incurred but not paid by the end of the period.
Define:
Accrued interest
Interest earned but not yet paid.
This is a liability.
Example of an accrued expense.
Define:
Accumulated depreciation
An accounting measure that represents the total depreciation expense recognized on a fixed asset (PPE) over its useful life, up to a specific point in time.
Used to offset the cost of PPE over time.
Define:
Acquisition method
Method of accounting for a business combination- Acquirer is required to measure each identifiable asset and liability at fair value.
Was the result of an attempt by IASB and FASB to support convergence of standards for the accounting of business combinations.
Define:
Amortized cost
The cost of an asset adjusted for amortization and impairment.
Historical (initial) cost, reduced by amortization and impairment.
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Amortization
The process of allocating the cost of intangible long-term assets with a finite useful life to separate accounting periods.
Spreading the cost over the useful life (different accounting periods).
Define:
Asset utilization ratios
aka efficiency ratios
Ratios which assess how effectively a company uses its assets to generate sales or revenue.
The turnover ratios.
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Assets
Resources controlled or owned by an entity from which future economic benefits are expected to flow to the entity.
Define:
Available-for-sale
Debt and equity securities which are neither classified as held-to-maturity or held-for-trading. The holder is willing to sell but not actively planning to sell. Reported at fair value on the balance sheet.
Define:
Balance sheet
Statement of financial position.
Financial statement presenting current financial position for a company. This requires the disclosure of current resources the company controls (assets) and claims on those resources (liabilities and equity).
This is a snapshot of the financial position at a particular point in time.
Define:
Book value
The net amount for an asset or liability on the balance sheet.
May also refer to the amount by which a company’s assets exceed their liabilities.
aka carrying value or carrying amount
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Carrying amount
The amount at which an asset or liability is valued according to accounting principles.
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Cash conversion cycle
The length of time for a company to convert cash invested in operations to cash received as a result of operations.
Days of inventory on hand + days of sales outstanding – number of days of payables.
Define:
Cash equivalents
Very liquid short-term investments.
≤ 90 days until maturity
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Cash flow from operations
Cash earned from operating activities.
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Classified balance sheet
A balance sheet organized into different classfications (categories) so as to group together the various assets and liabilities based on similar characteristics.
e.g., current and noncurrent
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Common-size analysis
Restatement of financial statement items in terms of a common denominator or reference item in order to make comparisons more straightforward.
e.g., income statement where all items expressed as % of revenue.
Define:
Completed contract
Method of revenue recognition- company does not recognize any revenue until the contract is completed.
Often used for long term construction contracts.
Define:
Comprehensive income
- = Net Income + Other Comprehensive Income (OCI)
- A more comprehensive account of income earned, as it considers items which bypass the income statement (like unrealized +/- on securities available for sale, or foreign currency translation adjustments).
Define:
Contra account
Account used to offset another account.