Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
82 Cards in this Set
- Front
- Back
Effects of foreign currency gains and losses |
Not reported on income statement , but affect owners equity because they are included as other comprehensive income |
|
Cash Conversion Cycle |
(365/receivables) + (365/inventory turns) - (365/payables) |
|
ROA |
When net income is positive and debt is present |
|
free Cash Flow to Firm |
CFO + interest expense net of tax - net capital expenditures |
|
Trading Securities |
Held with the intent to profit over the short term are classified as trading and changes in their market values are reflected in their balance sheet values and also reported on the income statement |
|
Converting LIFO to FIFO |
COGS LIFO - (ending LIFO reserve - beginning LIFO reserve) |
|
General Journal |
Listing of all the journal entries in order of their dates |
|
Firms with low P/E |
Value firms, will exclude growth firms who have a high expected earnings growth which leads to high P/E |
|
Firms with high Dividend Yield Stocks |
Likely includes disproportionately high number of financial services firms who typically have higher dividend payouts |
|
Disclosure under GAAP and IFRS for operating & financing leases |
Require minimum lease payments for each of the next five years and the sum of the minimum lease payments more than five years in the future |
|
Place where Material changes in the firms cost of debt capital |
Included in Management discussion and analysis section of financial statements |
|
How are Permanently impaired assets reported |
Reported as losses “above the line” and are included in income from continuing operations |
|
3-Part DuPont approach |
Net Profit Margin x Asset Turnover x leverage ratio |
|
Revenue Recognition Requirements |
Completion of earnings process Reasonable assurance of payment |
|
Revenue Recognition Methods |
Percentage of completion Completed contract method Installment sales Cost recovery method |
|
Converged Revenue Recognition Standards |
1. Identify contracts 2. Identity performance obligations 3. Determine transaction price 4. Allocate price to obligations 5. Recognize when (as) obligations are satisfied |
|
Unusual or Infrequent Items |
Gains/losses from disposal of business segment Gains/losses from sale of assets or investments in subsidiaries Provisions for environmental remediation Impairments, write-offs, write-downs, and restructuring costs Integration expenses associated with businesses recently acquired |
|
Discontinued Operations |
Must be a business-asset, Operations, investing, financing activities must be physically/operationally distinct from the rest of the firm. Income/losses are reported net of tax after income from continuing operations. |
|
Common-Size financial Statement analysis |
Expresses all balance sheet accounts as a percentage of total assets |
|
Inventory method best for inventory values and cost of sales |
FIFO provides better estimate for inventory values LIFO provides better estimate for cost of sales |
|
Common size income statement |
Expresses all income statement items as a percentage of sales. |
|
Common-Size financial Statement analysis |
Expresses all balance sheet accounts as a percentage of total assets |
|
Characteristics of Financing Lease |
Working capital is lower because the current portion of the finance lease increases current liabilities. Total asset turnover is lower because total assets are higher under a finance lease. Report higher debt-to-equity ratios because liabilities increase ROE is lower with a finance lease because the numerator NI is decreased more than equity from the greater expense in the early years. |
|
Common-Size Cash Flow Statement |
Expresses each line item as a percentage of total cash inflows (outflows) as a percentage of revenue |
|
Horizontal common-size financial statement analysis |
Expresses each line item relative to its value in a common base period |
|
Cash ratio |
Cash + marketable securities/current liabilities |
|
Defensive interval |
Cash + mkt. sec + receivables/daily cash expenditures |
|
Receivables Turnover |
Annual Sales/Annual Receivables |
|
Inventory turnover |
COGS/average inventory |
|
Payables turnover ratio |
Purchases/average trade payables |
|
Days of sales outstanding |
365/receivables turnover |
|
Days of inventory on hand |
365/inventory turnover |
|
Number of days of payables |
365/payables turnover ratio |
|
Cash Conversion Cycle |
(Days of inventory on hand)+(days of sales outstanding)-(number of days of payables) |
|
Total asset turnover |
Revenue/average total assets |
|
Fixed asset turnover |
Revenue/average fixed assets |
|
Working Capital Turnover |
Revenue/average working capital |
|
Gross Profit Margin |
Gross Profit/revenue |
|
Operating Profit Margin |
Operating profit/revenue = EBIT/net sales |
|
Return on assets |
EBIT/average total capital |
|
Debt to equity ratio |
Total debt/total equity |
|
Total debt-ratio |
Total debt/total assets |
|
Interest Coverage |
EBIT/interest |
|
Fixed charge coverage |
EBIT + lease payments/interest + lease payments |
|
Growth rate |
Retention rate x ROE |
|
Retention rate |
1-dividends declared/operating income after taxes |
|
Liquidity ratios indicate... |
Company’s ability to pay its short term liabilities |
|
Operating Performance Ratios |
Indicate how well management operates the business |
|
Traditional DuPont equation |
Return on equity = (net income/sales)(sales/assets)(assets/equity)
Or (net profit margin)(asset turnover)(equity multiplier) |
|
Extended DuPont formula |
(net income/EBT) x (EBT/EBIT) x (EBIT/revenue) x (revenue/avg. total asset turnover) x ( avg. total assets/avg. equity) Or Tax burden x interest burden x EBIT Margin x asset turnover x leverage |
|
Held-for-trading Marketable security |
Fair value on balance sheet; dividends, interest, realized and unrealized G/L recognized on income statement |
|
Available-for-sale Marketable Securities |
Fair value on balance sheet; dividends, interest, realized G/L recognized on income statement, unrealized G/L is other comprehensive income |
|
Held-to-maturity Marketable Securities |
Amortized cost on balance sheet; realized G/L recognized on income statement |
|
In period of rising prices and stable or increasing inventories, LIFO: |
Higher COGS Lower gross profit Lower inventory balances |
|
In period of rising prices and stable or increasing inventories, FIFO: |
Lower COGS Higher gross profit Higher inventory balances |
|
Basic EPS |
Does not consider the effects of any dilutive Securities in computation. Net income-preferred dividends/wtd. Avg. no of common shares outstanding |
|
Diluted EPS |
(Net income - preferred div) + convertible preferred dividends + (convertible debt interest)(1-t)/(wtd avg shares) + (shares from conversion of conv. pref shares) + (shares conversion conv. debt) + (shares issuable from stock options) |
|
Effects of Capitalizing Long-Lives assets |
Lowe’s income variability and increases near-term profits. Increase assets, equity. Expensing has the opposite effect
|
|
Straight-line Depreciation |
Cost - residual value/useful life |
|
Double Declining balance |
(2/useful life)(cost-accum. depreciation) |
|
Units of production Depreciation |
(Cost - Salvage Value)/Useful life in units x output units |
|
Revaluation of Long-Lived Assets under GAAP |
Revaluation is not permitted |
|
Revaluation under IFRS |
Gain recognized in net income only to the extent it reverses previously recognized impairment for loss; further gains recognized in equity as a revaluation surplus. For investment property, all G/L from marking to fair value are recognized as income |
|
Deferred taxes assets are created |
When taxable income (on tax return) is more than pretax income (on financial statements) due to temporary differences, and the difference is likely to reverse. |
|
Deferred taxes are created |
When taxable income (on tax return) does NOT equal pretax income (on financial statements) due to temporary differences |
|
Deferred Tax liabilities |
Created when taxable income < pretax income. Treat DTL as equity if not expected to reverse |
|
Deferred Tax Assets |
Created when taxable income > pretax income. Must recognize valuation allowance if more likely than not DTA will not he realized. |
|
Premium Bond |
Coupon rate> market rate |
|
Discount bond |
Coupon < market rate at issuance |
|
Interest Expense |
Equals book value at the beginning of the year multiplied by the market rate of interest at the time the bonds were issued |
|
Capital Leases result in |
Higher: assets, liabilities, CFO, debt/equity. Lower: net income (early years), CFF, current ratio, working capital, asset turnover, ROA, ROE Total cash flow remains the same |
|
Unrealized Gains for Trading Securities |
Gain from bond in net income, which is then recorded in retained earnings |
|
Unrealized Gains on Available-for-Sale Securities are reported as |
Other comprehensive income for the period and are recorded in accumulated other comprehensive income within owners equity |
|
Unrealized Gains on Held-to-maturity securitirs |
Not reported on the financial statements |
|
Interim SEC Filings |
Update the major financial statements and footnotes but are not necessarily audited |
|
Basic EPS |
Share amount x months held/ 12 months
Does not consider dilutive shares |
|
Installment method |
Should be used when future cash collection cannot be reasonably estimated. Should use completed contract when the firm cannot estimate the outcome reliably |
|
Lower valued inventory effects on future periods |
Result in lower cost of sales and higher net income |
|
Effective Tax Rate |
Tax Expense/Pretax Income |
|
Valuing Land under US GAAP |
Unless impairment has been recognized, land is reported at historical cost and is not subject to depreciation. Increases in value are not reflected in balance sheet values |
|
Interest and dividends received under IFRS |
May be shown as either cash flow from operations or from investing |
|
Fundamental Qualitative Characteristics of financial statements under IASB |
Timeliness, comparability, verifiability and understandability that enhance relevance and faithful presentation |