Chapter 2 Finance 'Introduction to Financial Statement Analysis

Which of the following is considered to be a financing activity?

Making a dividend payment

The market-to-book ratio is the ratio of:

market value of equity to the accounting value of equity

DuPont analysis relates ROE to:

profitability, asset efficiency and leverage

details on leasing activities

Financial statements also have extensive notes where companies provide additional information such as:

Which of the following is considered a current liability?

Accounts payable

The three main financial statements are the balance sheet, the income statement and the statement of cash flows. However, there is a fourth financial statement known as the:

statement of stockholders' equity

Sarbanes-Oxley Act

stiffening penalties for false information

Financial statements also have extensive notes where companies provide additional information such as:

details on leasing activities

The financial statements include an introduction known as the management discussion and analysis. This preface must contain information about:

off-balance sheet transactions

EBITDA, or earnings before interest, taxes, depreciation and amortization, shows how much cash a firm has earned from:

operations

Retained earnings are the sum of:

previous years' of earnings less dividends

Generally accepted accounting principles

-Accountants prepare financial statement using a set of guidelines established by the profession to ensure that all financial statements are comparable.

Financial Statements

-Accounting reports issued by a firm periodically (usually quarterly, and annually) that present past performance information and a snapshot of the firm's assets and the financing of those assets.

Acid-test ratio

-Current assets minus inventories over current liabilities is called

Accounts receivable are:

credit sales that have not been collected

Making a dividend payment

is classified as a financing activity on the statement of cash flows.

Net income

is the type of income that may be distributed to the company's owners or reinvested in the company.

Value of the firm's underlying business

-The enterprise value adds the total market value of the firm's equity and debt and then subtracts out the most liquid components.

A firm with 18.25 days sales in inventory has an inventory turnover of:

20

Since accounting principles differ among countries, the overall global trend is for firms to begin using:

International Financial Reporting Standards

International Financial Reporting Standards

Since accounting principles differ among countries, the overall global trend is for firms to begin using:

Given that Company Y's current stock price is $51.50 per share, and the company's most recent earnings were $2.32 a share, Company Y's P/E ratio is 22.2 times.

The P/E ratio is an abbreviation for price-to-earnings ratio and is calculated by taking the $51.50 share price and dividing by the $2.32 in earnings. This gives us $51.50/$2.32 = 22.2 times. This means that Company Y is currently trading at a multiple of 22.2 times the most recent earnings. P/E ratios provide managers with some idea of how the market perceives the company's future. Higher P/Es indicate extreme enthusiasm. P/E ratios are never denominated in dollars and do not represent a percentage.

value of the firm's underlying business

The enterprise value adds the total market value of the firm's equity and debt and then subtracts out the most liquid components to obtain the:

statement of stockholders' equity

The three main financial statements are the balance sheet, the income statement and the statement of cash flows. However, there is a fourth financial statement known as the:

Any publicly-traded U.S. firm must file quarterly financial statements and annual financial statements with the __________ and also send an annual report that includes their financial statements to their shareholders.

U.S. Securities and Exchange Commission

Net working capital equals:

current assets minus current liabilities

The enterprise value adds the total market value of the firm's equity and debt and then subtracts out the most liquid components to obtain the

value of the firm's underlying business