Unit 1 Flashcards
Audit requirements in Spain
- 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.
Balance sheet definition
A snapshot of the company’s financial position
Liquidity
A company’s ability to meet its current obligations
Financial health
A company’s ability to meet its long.term obligations (takes a long-term perspective on liquidity)
Operating performance
Amount of profits and cash flow generated relative to assets, stockholders equity and revenue
Assets
What a company owns
Stockholders equity
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
Revenue
The total amount of money a company earns by selling their products or services
Asset management performance
How effectively a company manages its assets to generate profits and create value for shareholders
Inventory
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.
Accounts receivable
Money you will receive after a period of time the product or service was granted. It’s money people owe you
Asset turnover
How much money a company owns or controls its supply chain, from the production of raw materials to the distribution of finished products
Degree of vertical integration
The extent to which a company owns or controls its supply chain, from the production of raw materials to the distribution of finished products
Ratio
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
Budget
How you will earn and spend money
Trends
Past history of the company’s operations, performance or environment
Benchmarking
The performance of other companies in the same type of business
Reference point
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
Expenditure
When a company agrees on spending money on something (ex. buying new equipment)
Expense
Once the money is spent (expenditure), it needs to be recorded in their books to keep track of their finances
Depreciation
The wear out of tangible assets over time and accounting for that in a way that reflects the true cost of using them
Estimated useful life
How mucho you expect your asset is going to last
Amortization
Wear out of intangible assets over time and accounting for that in a way that reflects the true cost of using them
Accruals accounting
Recognizes costs and expenses when they occur rather than when actual cash is exchanged
Reserves
Saving accounts for companies
Prepaid expenses
Paying something in advance before you actually use it
Lower of cost or lower of market
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
Marketable securities
Short-term investments that companies make when they have cash that will not be needed within the next few weeks or months
Threshold amount
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
Taxes payable
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
Wages payable
The amount of money that a company owes to its employees for work that has been performed but has not yet been paid
Net working capital
The capital (money) available in the short term to run the business
Common stock
The total amount of money that people have invested in the company since it began
Retained earnings
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
Book value of equity
The value of a business according to its books or accounts, as reflected on its financial statements
Market capitalization
The aggregated market value of a company represented in a dollar amount
Market value
The value that the investment community gives to a particular equity or business
Liquidation value
Net value of a company’s physical assets if it were to go out of business and the assets sold
Salvage value
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
Solvency
The ability of a company to pay its financial obligations
Market to book ratio (P/B)
A ratio that investors use to compare a company’s worth in the market vs. what it’s worth in their books
Debt to equity ratio (D/E)
A measure of the degree to which a company is financing its operations with debt rather than its own resources
Leverage
To what extent a company uses liabilities as a source of financing
Current ratios
Measures the company’s ability to pay short-term debt obligations or those due within one year
Enterprise value
The cost to take over a business.
Measures a company’s total value, often used as a more comprehensive alternative to market capitalisation.
