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Business Test 1 > Test 1 > Flashcards

Test 1 Flashcards

1
Q

Purpose of Ratio Analysis

A
  • Identify a company’s strengths and weaknesses

- Forecast future performance

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2
Q

4 Types of Financial Ratios

A
  1. Liquidity
  2. Capital Adequacy (Financial leverage)
  3. Asset Quality (Asset Management)
  4. Earnings (Profitability)
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3
Q

Liquidity ratios…

A

help to analyze a company’s ability to meet its short term obligations

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4
Q

Quick (acid-test) Ratio excludes…

A

Inventories (not easily convertible to cash)

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5
Q

Companies want these ratios above 1

A

Current Ratio, Quick (acid-test) Ratio

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6
Q

Capital Adequacy Ratios

A

Debt Ratio, Interest Coverage Ratio

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7
Q

Companies like this ratio not close to 1 or close to 0

A

Debt Ratio

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8
Q

Interest Coverage Ratio =

A

Earnings before interest and taxes/Interest Expense

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9
Q

Companies want this ratio well above 1

A

Interest Coverage Ratio

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10
Q

Asset Quality Ratios

A

Inventory Turnover Ratio, Asset Turnover Ratio

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11
Q

Day’s Inventory =

A

365/Inventory Turnover

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12
Q

Inventory Turnover Ratio shows…

A

How quickly the inventory is being turned over

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13
Q

Companys want these ratios as high as possible…

A

Inventory Turnover Ratio, Asset Turnover Ratio, Profit Margin Ratio

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14
Q

Asset Turnover Ratio shows

A

how efficiently the company’s assets are being used to generate sales

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15
Q

Earnings Ratios

A

Profit Margin (Return on Sales) Ratio, Return on Assets Ratio

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16
Q

This ratio allows to meaningfully compare companies of different sizes

A

Return on Assets Ratio

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17
Q

This ratio doesn’t allow to meaningfully compare companies of different sizes

A

Profit Margin (Return on Sales) Ratio

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18
Q

Long Term Assets

A
  1. Property, Plant and Equipment
  2. Land
  3. Long-Term Investments
  4. Goodwill
  5. Other
    - 6. Accumulated Depreciation
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19
Q

Current Assets

A
  1. Cash
  2. Marketable Securities
  3. Accounts Receivable
  4. Inventory
  5. Prepaid Expenses
    - 6. Allowance for Bad Debts
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20
Q

Long Term Debt

A

Notes Payable + Bonds Payable + Mortgage Payable - Discount on Bonds

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21
Q

Gross Margin

A

Revenues - Cost of Goods Sold

22
Q

Net Income

A

Gross Margin - All Expenses - Income Tax

23
Q

Gross Margin %

A

(Total Rev + (Change in Inventory))/Gross Profit

24
Q

Operating Income

A

Gross Margin - Operating Expenses

25
Q

Operating Expenses (Account Names)

A

Selling, General, Administration Costs
Depreciation Expense
Research and Development

26
Q

Income Statement

A 
Gross Margin
Operating Expenses
Operating Income
Earning Before Taxes
Net Income
27
Q

Weighted Average

A

Average cost of each unit

28
Q

Stockholders’ Equity Calculation

A

(Common Stock + Paid-in Capital + Retained Earnings) - Treasury Stock

29
Q

Bad Debt Expense

A

(Amount Receivable * Estimated percent uncollectible) - Current Balance

30
Q

Goodwill Created =

A

Total amount paid - total fair value (assets - liabilities)

31
Q

Book Value

A

Amount worth on the balance sheet

32
Q

Retained Earnings

A

Beginning Balance + Net Income - Dividend paid

33
Q

A balance sheet shows…

A

Claims owners have against assets of the firm

34
Q

Is Depreciation on the balance sheet?

A

No

35
Q

Are Intangible assets current or non-current?

A

Non-current

36
Q

Is Dividend Expense included on the Income Statement?

A

No

37
Q

Does Net Income include Dividends paid?

A

No

38
Q

Does a Balance Sheet show a company’s current market value?

A

No

39
Q

The Balance Sheet represents the financial position of the firm for what time period?

A

The day it is dated only.

40
Q

The accounting equation can be described as…

A

Resources of the firm equal the creditor’s and owner’s claim to those resources.

41
Q

In accrual basis accounting:

A

Revenues are recognized when earned rather than when the cash is collected

42
Q

The Income Statement represents the firm’s financial position for what time period?

A

The previous Fiscal Year

43
Q

The assumption that a business has perpetual existence is recognized by:

A

Going concern

44
Q

Paying a liability will…

A

Decrease assets and decrease liabilities

45
Q

Prepaid Expenses are a…

A

Current Asset

46
Q

Bond Rate < Market =

A

Discount

47
Q

Bond Rate > Market =

A

Premium

48
Q

Short Term Debts

A 
Salaries Payable
Taxes Payable
Dividends Payable
Accounts Payable
Interest Payable
Current Mortgages Payable
Current Bonds Payable
Current Notes Payable
49
Q

Notes Payable is a…

A

Long term debt

50
Q

Depreciation Expense…

A

counts towards net income

51
Q

Bad Debt Calculation (re: current balance)

A

Subtract current balance at end

Business Test 1 (25 decks)

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