chapter 14 accounting 6010

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primary factors in evaluating the quality of working capital include

(1) the nature of the current assets and (2) the length of time required to convert those assets into cash.

Quick Ratio

(Current Assets - Inventory) / Current Liabilities

Price/Earnings (P/E) Ratio

A measure of investors' expectations about the company's future prospects , reflects investors expectations, based on an assessment of the future

Current Ratio

CA/CL

inventory turnover rate

COGS/Average Inventory

Interest Coverage Ratio

EBIT/ interest expense

Gross Profit Rate

Gross profit expressed as a percentage of sales; computed as gross profit divided by net sales.

Return on Equity (ROE)

Net Income / Average Stockholders' Equity

Return on Equity

Net Income / Average total equity

Quick Ratio

The quick ratio compares the most liquid current assets (cash, marketable securities, and receivables) with current liabilities.

which of the following would you expect to find in notes to financial statements

accounting policies and methods used in FS, assets pledged to secure specific liabilities, significant commitments and contingencies

the ratio that indicates how quickly a company converts its account receivable into cash is called the

accounts receivable turnover rate

reconcile net income to net cash

add depreciation

reconcile net income to net cash

add increase in accounts payable

reconcile net income to net cash

add increase in notes payable to creditors

reconciling a company's net income to its net cash from operating activities includes subtractions for which of the following

an increase in accounts receivable, a decrease in accrued liabilities

base number (denominator) in the calculation of return on assets is

average total assets : ROA = OI / average total assets

component percentage for plant and equipment: a company has TA 1.5M, sales of 4M, Plant and equipment less depreciation of 300000.

calculate plant and equipment as percentage of net assets

if a business fails the claims of __take priority over those of the owners

creditors

widely used measure of liquidity that includes all current assets is referred to as the ____ ratio

current

assets that are relatively liquid and are expected to become cash in the relative near future are called

current assets

which of the following is NOT a section you would find in a classified income statement

current assets

Working Capital

current assets (cash, marketable securities, notes receivable, accounts receivable, inventory, prepaid expenses)- current liabilities (notes payable < short time, accounts payable, taxes payable, accrued expenses payable, unearned revenue and customer deposits)

which of the following is/are correct about the debt ratio?

debt ratios of companies vary by industry, the lower the debt ratio, the safer the position of creditors

which of the following is/are particularly relevant to a company's common stockholders if they are interested in receiving regular cash income?

dividend yield, earnings per share, price-earnings ratio

which of the following is/are particularly relevant to a company's common stockholders

dividend yield, price earnings ratio

accounts receivable turnover rate

dividing net sales by the average balance of accounts receivable, the ratio that indicates how quickly a company converts its accounts receivable into cash

which of the following best describes the meaning of leverage

earning more on debt than the cost of debt enhancing the investment of common stock holders equity

the calculations of the current ratio includes all of the following in the numerator except

equipment, retained earnings

T/F annual reports of public companies are made available only to that company's creditors and stockholders

false

T/F: ratios compare only amounts within a single financial statement or a statement of financial position (balance sheet)

false

T/F the single step income statement and the multiple step income statement for the same company for the same year will result in different net income figures

false, same and eps same

inventory turnover rate

how many times during the year the company is able to sell a quantity of goods equal to its average inventory.

the most common approaches used for financial analysis compare info about a company in a single accounting period with

info about other companies in the same industry, info a out the same company in different accounting periods

the ratio that indicates how many times during the year the company is able to sell a quantity of goods equal to its average inventory is called the

inventory turnover rate, NOT ratio

which of the following does NOT accurately describe price-earnings ratio?

it reflects a company's liquidity, it reflects a company's rate of inventory turnover

quality of earnings

judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the

the ability of a company to meet its continuing obligations is referred to as

liquidity

Price/Earnings (P/E) Ratio

market price per share/earnings per share

dividend yield

most recent dividend/market price of stock

an income statement that includes subtotals of profitability at intermediate steps is called a ___income statement

multiple-step

the general formula for earnings per share

net income/shares of cap stock outstanding or NI/# of shares of common stock outstanding

Gross Profit

net sales - cost of goods sold

the length of time required to invest cash in inventory, sell the inventory and collect the receivale is referred to as

operating cycle

Return on Assets (ROA)

operating income/average total assets

operating cycle

period of time required for a merchandising company to convert its inventory into cash

factors helpful in judging the quality of working capital include all of the following except

principal factors affecting the quality of working capital are (1) the nature of the current assets and (2) the length of time required to convert those assets into cash. 3) turnover ratios

judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the ___ earnings

quality

the income statement format that groups all revenues together less all expenses grouped together, with no intermediate subtotals in arriving at net income is the

single step income statement

reconcile net income to net cash

subtract decrease in accrued liabilities

reconcile net income to net cash

subtract increase in AR

reconcile net income to net cash

subtract increase in inventories

reconcile net income to net cash

subtract increase in prepaid expenses

the percentage that inventory represents of the total assets in a statement of financial position (balance sheet) is called

the component percentage

Measures of Profitability include all of the following except

the current ratio gross profit rate, operating income, Earnings Per Share, Book Value per Share, Price-Earnings Ratio, Return on Sales, Return on Equity

which of the following is NOT a factor in judging a company's liquidity?

the depreciation of plant assets

primary factors in evaluating the quality of working capital include

the nature of current assets, the length of time required to convert current assets into cash

interest coverage ratio or times interest earned

the ratio of operating income available for the payment of interest to the annual interest expense

which of the following is/are correct about the annual report of companies?

they often include multi year summaries of comparative info about the company, they include management's own discussion and analysis of important aspects of the company

which of the following is NOT a goal of financial accounting information?

to demonstrate a company's compliance with tax law IS a goal, provide info for identifying key trends and relationships, to provide economic decision makers with useful info

Debt Ratio

total liabilities/total assets

changes in a company's revenues, expenses, operating income are referred to as

trends

changes in a company's revenues, expenses, operating income, and net income are referred to as____in earning

trends

the basis or denominator for computing a percentage change from year 1 to year 2 is

year 1 amount

trend percentage

year/base year


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