Unit 1

Question 1

Audit requirements in Spain

Answer 1

• Net annual sales of more than 5.7 million €
• Assets worth more than 2.85M €
• 50 or + employees on avg throughout the year
• Companies that are quoted on the Stock Exchange, finance and credit companies, recipients of official subsidies; life insurance companies, etc.

Question 2

Balance sheet definition

Answer 2

A snapshot of the company’s financial position

Question 3

Liquidity

Answer 3

A company’s ability to meet its current obligations

Question 4

Financial health

Answer 4

A company’s ability to meet its long.term obligations (takes a long-term perspective on liquidity)

Question 5

Operating performance

Answer 5

Amount of profits and cash flow generated relative to assets, stockholders equity and revenue

Question 6

Assets

Answer 6

What a company owns

Question 7

Stockholders equity

Answer 7

The amount of money that would theoretically remain for shareholders if a company were to liquidate all of its assets and pay off all of its debts

Question 8

Revenue

Answer 8

The total amount of money a company earns by selling their products or services

Question 9

Asset management performance

Answer 9

How effectively a company manages its assets to generate profits and create value for shareholders

Question 10

Inventory

Answer 10

Includes items that a business holds for the purpose of selling them to customers or using them in the production process:
All the raw materials, work in progress and finished goods (goods available for sale) a company owns. Manufactured goods.

Question 11

Accounts receivable

Answer 11

Money you will receive after a period of time the product or service was granted. It’s money people owe you

Question 12

Asset turnover

Answer 12

How much money a company owns or controls its supply chain, from the production of raw materials to the distribution of finished products

Question 13

Degree of vertical integration

Answer 13

The extent to which a company owns or controls its supply chain, from the production of raw materials to the distribution of finished products

Question 14

Ratio

Answer 14

Comparison of two numerical values or quantities obtained from a company’s financial statements, used to compare the company’s performance against budget, trends and benchmarking

Question 15

Budget

Answer 15

How you will earn and spend money

Question 16

Trends

Answer 16

Past history of the company’s operations, performance or environment

Question 17

Benchmarking

Answer 17

The performance of other companies in the same type of business

Question 18

Reference point

Answer 18

Providing the same information for the prior year to be able to compare (same date, two consecutive years), understand and analyse it. It’s essential and should always be provided

Question 19

Expenditure

Answer 19

When a company agrees on spending money on something (ex. buying new equipment)

Question 20

Expense

Answer 20

Once the money is spent (expenditure), it needs to be recorded in their books to keep track of their finances

Question 21

Depreciation

Answer 21

The wear out of tangible assets over time and accounting for that in a way that reflects the true cost of using them

Question 22

Estimated useful life

Answer 22

How mucho you expect your asset is going to last

Question 23

Amortization

Answer 23

Wear out of intangible assets over time and accounting for that in a way that reflects the true cost of using them

Question 24

Accruals accounting

Answer 24

Recognizes costs and expenses when they occur rather than when actual cash is exchanged

Question 25

Reserves

Answer 25

Saving accounts for companies

Question 26

Prepaid expenses

Answer 26

Paying something in advance before you actually use it

Question 27

Lower of cost or lower of market

Answer 27

When a company accounts for its inventory (the goods it has on hand to sell), it should value the inventory at whichever amount is lower: the original cost to acquire the inventory or its current market value

Question 28

Marketable securities

Answer 28

Short-term investments that companies make when they have cash that will not be needed within the next few weeks or months

Question 29

Threshold amount

Answer 29

A specific dollar value that serves as a cutoff point or limit for determining how certain transactions or items are recorded in a company’s financial statements

Question 30

Taxes payable

Answer 30

The amount of taxes that a business or individual owes to the government but has not yet paid. It represents a liability on the entity’s balance sheet because the taxes are due but haven’t been settled yet

Question 31

Wages payable

Answer 31

The amount of money that a company owes to its employees for work that has been performed but has not yet been paid

Question 32

Net working capital

Answer 32

The capital (money) available in the short term to run the business

Question 33

Common stock

Answer 33

The total amount of money that people have invested in the company since it began

Question 34

Retained earnings

Answer 34

The accumulated profits a company has earned over time that is has chosen to retain and use for its own purposes (future use) as shareholder’s equity rather than paying them out to shareholders

Question 35

Book value of equity

Answer 35

The value of a business according to its books or accounts, as reflected on its financial statements

Question 36

Market capitalization

Answer 36

The aggregated market value of a company represented in a dollar amount

Question 37

Market value

Answer 37

The value that the investment community gives to a particular equity or business

Question 38

Liquidation value

Answer 38

Net value of a company’s physical assets if it were to go out of business and the assets sold

Question 39

Salvage value

Answer 39

The estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life

Question 40

Solvency

Answer 40

The ability of a company to pay its financial obligations

Question 41

Market to book ratio (P/B)

Answer 41

A ratio that investors use to compare a company’s worth in the market vs. what it’s worth in their books

Question 42

Debt to equity ratio (D/E)

Answer 42

A measure of the degree to which a company is financing its operations with debt rather than its own resources

Question 43

Leverage

Answer 43

To what extent a company uses liabilities as a source of financing

Question 44

Current ratios

Answer 44

Measures the company’s ability to pay short-term debt obligations or those due within one year

Question 45

Enterprise value

Answer 45

The cost to take over a business.
Measures a company’s total value, often used as a more comprehensive alternative to market capitalisation.