Financial Statements Flashcards
3 types of companies
- Service Companies
- Merchandizing Companies
- Manufacturing Companies
Service Company: examples and money earned is called…
- airlines, consultants, lawyers, banks, universities…
- customer purchases something intangible
- they earn REVENUE
Money earned by merchandizing and Manufacturing companies is called…
Sales
Synonyms for REVENUE depending on type of agency:
- tuition
- admission
- consulting fees
- service revenue
- fees earned
- commission
- concessions revenue
- subscription revenue
Supplies ASSET turns into Supplies EXPENSE when
the minute it starts to be consumed
Examples of EXPENSES (income statment)
- salary expense
- advertising expense
- supplies expense
- rent expense
- depreciation expense
- interest expense
Functions of Financial Accounting (in order)
- Recording of daily business transactions in different journals
- Qualifying/Classing said transactions
- Summarizing said transactions
- Analyzing and preparing financial statements
Breakdown of STOCKHOLDER’S EQUITY
- Preferred Stock
- Paid in Capital from Preferred Stock
- Common Stock
- Paid in Capital from Common Stock
- Retained Earnings (R/E)
4 Types of Assets
- Current Assets
- Fixed Assets
- Investments
- Other Assets
Examples of an “Other Assets”
- copyrights
- patents
- brand name
Examples of Current Assets
- Cash
- A/R
- Notes Receivable
- prepaid expenses
- inventories
- marketable securities
Examples Fixed Assets
- Office Equipment
- Vehicles
- Buildings that are OWNED
- Heavy Equipment
- Land
Which fixed asset doesn’t depreciate
Land
Types of Liabilities
- Short term
- Long term
Definition: Current Liabilities
Must be paid out within 1 year
Examples: Current Liabilities
- Accounts Payable
- Notes Payable (maturity < 1 year)
- Interest Payable
- Salaries Payable
- Taxes payable (ex. sales tax)
- unearned fees
- dividends in arrears
- accrued taxes
Definition Unearned Fee
Money that you received but you haven’t provided the service yet
Examples: Long-term Liabilities
- Notes Payable (maturity > 1 year)
- Mortgage Payable
- Bonds Payable
- Term Loans
Book Value of Fixed Asset =
= Value of Asset - Accumulated Depreciation
Allowance for Doubtful Account is an ___ in a balance sheet and is subtracted from ___
Current Asset; Accounts Receivable
Allowance for Doubtful account is also referred to as _____ by banks
Loan Loss Reserve
Net working Capital =
= Current Assets - Current Liabilities
Retained Earnings are…
Earnings of the company which are reinvested in the core business
Net Income =
= Revenues - Expenses = Net Profit
Cash Flow is…
Increase or decrease in cash over a period. Different than net income
the INCOME STATEMENT…
Measures a company’s performance over a specific PERIOD of time, and reports profits and net income based on revenues and expenses
EPS =
= (Net Income after Taxes - Preferred Dividends) / Total # of Outstanding shares of COMMON stock
How long after the end of their fiscal year to corporations have to file taxes?
2.5 months
What is the FY of the US Government
Oct 1st to Sept 30
Profit Margin =
= (Net Income)/Total Revenue * 100%
Dividend Payout Ratio =
= (Dividends/Net Income) * 100%
Operating Cash Flow =
= EBIT + depreciation - taxes
represents the funds a company generates from normal business operations
Accrual Based Accounting
company recognizes and records revenue at time of sale, whether or not it has received the revenue in cash
Statement of Retained Earnings shows…
- what did the company do with the net income
- how much was paid out in dividends
- how much was retained and used internally (R/E)
….over a period of time..
Statement of Cash Flow divides into the categories of cash from…
- Operating Activities
- Financing Activities
- Investing Activities
Cash from Operating Activities focuses on…
- Current Assets and Current Liabilities
Cash from Investing focuses on…
Fixed Assets, buying and selling thereof
Cash from Financing
- IPO
- buying back your own shares
- long term borrowing
- retiring long term debt
- paying cash dividends
- short term borrowing from bank
Free Cash Flow generally refers to cash flow from…
assets
cash available to pay back owners/creditors once the company has made investments in working capital and capital assets necessary for growing and operating
When do companies need to send annual financial statements to the SEC
60 days after the end of their FY
10-Q reports must be filed…
quarterly with the SEC
Lessons from 1929 Crash
- establishment of the Securities and Exchange Commission
- Glass-Steagall Act 1934: separation of investment banks and commercial banks
Working capital should be ___ for a healthy company
Positive
Current Ratio =
= Current Assets / Current Liabilities
- unit is TIMES
Current Ratio should be ___ for a healthy company
> 1 (amount depends on industry average)
Accounts Receivable Turnover =
Sales / AR = Credit Sales / 360 days * Average Collection Period
Assets Turnover =
= Sales / [total] Assets
AKA Sales to Assets
Fixed Assets Turnover =
= Sales / Fixed Assets
Inventory Turnover =
And will be value of ___ for a service company
= Sales/Inventory
ZERO for service company
If AR Turnover = 12 times, what is the average collection period
Average Collection Period = 360/12 = 30 days
If AR Turnover = 6, what is the average collection period?
= 360 days / 6 = 60 days
DSO means ___ and is AKA…
Days Sales Outstanding
Average Collection Period
Debt Ratio =
= Total Liabilities / total Assets * 100%
It is a better sign when the Debt Ratio is….
Lower
Dupont Identity breaksdown ROE into 3 components…
ROE = Profit Margin * Assets turnover * Financial Leverage(Total Assets/ Total Equity)
ROE =
= Net Income / Total Equity
Equity is …
What the owner(s) receive after a company has satisfied all it’s liabilities
A marketable security is sold below cost, this affects
Cash flow from operations
A marketable security is a
current asset
10 year notes are issued to pay off AP, this affects
Cash flow from Financing
A fully depreciated asset is retired, this affects cash flow from
Investing
Short term notes receivable are sold at a discount, this means your Current Assets will ___, your Current Ratio will ___ and your net income will ___. It affects your cash flow from ___
Decrease (all 3) ; Operations
Short term notes are issued to trade off past due accounts payable, this will have the following effect on current assets and current ratio
no effect, change is 0, apples for apples
A marketable security is sold below cost, this will have the following effect on total current assets and current ratio
decrease
Equipment is purchased with short term notes, this will ___ total current assets, ____ current ratio, and ____ net income. If affects cash flow from ____
TCA no change
CR decreases
net income no change
Investing
