Lesson 3

Question 1

The practice and procedure guidelines used to prepare and maintain financial records and reports authorized by the Financial Accounting Standards Board (FASB)

Answer 1

Generally accepted accounting principles (GAAP)

Question 2

The accounting profession’s rule setting body, which authorizes generally accepted accounting principles (GAAP)

Answer 2

Financial Accounting Standards Board (FASB)

Question 3

A not-for-profit corporation established by Sarbanes-Oxley act of 2002 to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

Answer 3

Public Company Accounting Oversight Board (PCAOB)

Question 4

Annual report that publicly owned corporations must provide to stockholders; it summarizes and documents the firm’s financial activities during the past year.

Answer 4

Stockholders’ Report

Question 5

Typically, the first element of the annual stockholders’ report and the primary communication from management.

Answer 5

Letter to Stockholders

Question 6

Provides a financial summary of the firm’s operating results during a specified period.

Answer 6

Income statement

Question 7

The amount of cash distributed during the period and behalf of each outstanding share of common stock

Answer 7

Dividends per share (DPS)

Question 8

Summary statement of the firm’s financial position at a given point in time.

Answer 8

Balance sheet

Question 9

Short term assets expected to be converted into cash within one year or less.

Answer 9

Current assets

Question 10

Short term liabilities, expected to be paid within one year or less.

Answer 10

Current liabilities

Question 11

Debt for which payment is not do in the current year.

Answer 11

Long-term debt

Question 12

The amount of proceeds more than the par value received from the original sale of common stock.

Answer 12

Paid-in capital in excess of par

Question 13

Gives us a snapshot of the business assets liabilities and equity of a point and time.

Answer 13

Balance sheet

Question 14

Capital

Answer 14

Equity

Question 15

Ownership of business.

Answer 15

Assets

Question 16

Outside debts

Answer 16

Liabilities

Question 17

Inner/ inside debts

Answer 17

Owner’s Equity

Question 18

Statement of financial position

Answer 18

Balance sheet

Question 19

The cumulative total of all earnings, net of dividends, that have been retained and reinvested in the film since its inception. (Amount ng natirang profit ng company matapos bayaran lahat ng utang nito.)

Answer 19

Retained earnings

Question 20

Shows all equity account transactions that occurred during a given year.

Answer 20

Statement of stockholders equity/
Statement of changes in stockholders equity

Question 21

Provides a summary of the firm’s operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period.

Answer 21

Statement of cash flows

Question 22

Provide detailed information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements.

Prepared at the end of all reports.

A special report contains details and or disclosures about the informations and the balance sheet.

Answer 22

Notes to financial statements

Question 23

Five accounts

Answer 23

Assets, liabilities, equity, revenue, expenses

Question 24

This involves methods of calculating and interpreting financial ratios to analyze and monitor the firm’s performance.

Answer 24

Ratio analysis

Question 25

Two basic inputs to ratio analysis

Answer 25

Firm's Income Statement and Balance Sheet

Question 26

Comparison of different firm's financial ratios at the same point in time involves comparing the firm's ratios with those of other firms in its industry or with industry averages

Answer 26

Cross-sectional analysis

Question 27

A type of cross-sectional analysis in which the theorems ratio values are compared with those of 80 competitor or with a group of competitors that it wishes to emulate.

Answer 27

Benchmarking

Question 28

Evaluation of the firm's financial performance over time using financial ratio analysis. A sequence of data that records a variable and a specific equally spaced frequency recorded over time.

Answer 28

Time-series analysis

Question 29

The most informative approach to ratio analysis which combines cross-sectional and time-series analysis. A combined view that makes it possible to assess the trend in the behavior of the ratio in relation to the trend for the industry.

Answer 29

Combines analysis

Question 30

(T/F) Ratios that reveal large deviations from the norm merely indicate the possibility of a problem. Additional analysis is typically needed to determine whether there is a problem and isolate the causes of the problem.

Answer 30

T

Question 31

(T/F) A single ratio does not generally provide sufficient information from which to judge the overall performance of the firm. However if an analysis is concerned only with certain specific aspects of a firm's financial position one ratio may suffice.

Answer 31

F "one or two" ratio may suffice.

Question 32

The ratios being compared should be calculated using financial statements dated at different point in time during the year. If they are not, the effects of seasonality may produce erroneous conclusions and decisions. They shouldn't be consistent.

Answer 32

F Financial statements dated at the same point in time during the year. They should be consistent.

Question 33

Financial data being compared should have been developed in the same way.

Answer 33

T

Question 34

Results can be distorted by inflation so they will have different intrinsic value which can cause the book values of inventory and depreciable assets greatly from the replacement values.

Answer 34

T

Question 35

Five categories of financial ratios

Answer 35

Liquidity ratio Activity ratio Debt ratios Profitability ratios Market ratios

Question 36

It is a firm's ability to satisfy its short-term obligations as they come due.

Answer 36

Liquidity

Question 37

It measures how well a business can cover a short-term debt obligation using different assets . The ability of a firm to pay short-term liabilities. Can be found in the balance sheet

Answer 37

Liquidity ratio

Question 38

The most liquid asset

Answer 38

Cash

Question 39

(T/F) Financial ratio analysis begins with financial statements.

Answer 39

T

Question 40

A measure of liquidity calculated by dividing the firm's current assets by its current liabilities. Current assets / Current liabilities = ?

Answer 40

Current ratio

Question 41

A measure of liquidity calculated by dividing the firm's current assets minus inventory by its current liabilities. (Current assets - Inventory) / Current liabilities = ?

Answer 41

Quick (Acid-test) ratio

Question 42

Measure the speed with which various accounts are converted into sales or cash for inflows or outflows. Gaano kahusay gamitin ng company iyong assets nila para maka generate ng revenue or income

Answer 42

Activity ratio

Question 43

Measures the activity or liquidity of a firm's inventory Cost of goods sold / Inventory = ?

Answer 43

Inventory turnover

Question 44

Average number of days sales in inventory. How many days naka display sa inventory bago ma ibenta. No. of days per year / Inventory turnover= ?

Answer 44

Average age of inventory

Question 45

The average amount of time needed to collect accounts receivable. = Account receivable / average sales per day = Accounts receivable / (annual sales / 365 or 360)

Answer 45

Average collection period

Question 46

The average amount of time needed to pay accounts payable

Answer 46

Average payment period

Question 47

Indicates the efficiency with which the firm uses its assets to generate sales. Sales / total assets= ?

Answer 47

Total asset turnover

Question 48

Average days in a year

Answer 48

360 days

Question 49

General rule in decimals

Answer 49

2

Question 50

Measures the extent of a company's leveraged assets that are financed by debt. To know what portion of your assets are funded by liabilities or debts. Measures the proportion of total assets financed by the firm's creditors. Total liabilities / total assets = ?

Answer 50

Debt ratio

Question 51

Total liabilities / common stock equity

Answer 51

Debt-to-equity ratio

Question 52

Measures the firm's ability to make contractual interest payments sometimes called the interest coverage ratio. Earnings before interest and taxes / interest = ?

Answer 52

Times interest earned ratio

Question 53

Measures the firm's ability to meet all fixed payment obligations.

Answer 53

Fixed payment coverage ratio

Question 54

Measures how efficiently a business generate a profit (revenue, asset, equity, and capital employed).

Answer 54

Profitability ratios

Question 55

Measures the percentage of each sales dollar remaining after the firm has paid for its goods.

Answer 55

Gross profit margin = (Sales - COGS) /Sales = Gross profits / Sales

Question 56

Tells us how much big profit a business is able to generate from its revenue earned. Answers the question; Are we generating profits?

Answer 56

Profitability ratios

Question 57

Measures the percentage of each sales dollar remaining after all costs and expenses other than interest taxes and preferred stock dividends are deducted. The "pure profits" earned on each sales dollar Operating profits / sales = ??

Answer 57

Operating profit margin

Question 58

Measures the percentage of each sales dollar remaining after all costs and expenses including interests, taxes, and preferred stock dividends, have been deducted Earnings available for common stockholders / Sales

Answer 58

Net profit margin

Question 59

Earnings available for common stockholders / number of shares of common stock outstanding = ??

Answer 59

Earnings per share

Question 60

Measures the overall effectiveness of the management in generating profits with its available assets also called the Return on Investment (ROI) Earnings available for common stockholders / Total assets = ?

Answer 60

Return on total assets (ROA)

Question 61

Earnings available for common stockholders / common stock equity

Answer 61

Return on equity (ROE)

Question 62

Relate the firm's market value as measured by its current share price to certain accounting values. These ratios give insight into how investors in the marketplace believe that the firm is doing in terms of risk and return.

Answer 62

Market ratios

Question 63

Market price per share of common stock / Earnings per share

Answer 63

Price / earnings (P/E) ratio

Question 64

Provides an assessment of how investors view the firm's performance Market price per share of common stock / book value per share of common stock = ?

Answer 64

Market/book (M/B) ratio

Question 65

Common stock equity / number of shares of common stock outstanding

Answer 65

Book value per share of common stock

Question 66

Two popular approaches to a complete ratio analysis.

Answer 66

Summarizing old ratios and the Dupont system of analysis.

Question 67

(T/F) The summary analysis approach tends to view all aspects of the firm's financial activities to isolate key areas of responsibility.

Answer 67

T

Question 68

(T/F) The Dupont system acts as a search technique aimed at finding the key areas responsible for the firm's financial condition.

Answer 68

T