ACT205 - Exam 3
working capital
current assets-current liabilities
current ratio
current assets/current liabilities
advantages of corporation
limited liability ability to raise capital lack of mutual agency
times interest earned ratio
net income + interest expense + tax expense/interest expense
earnings per share
net income - dividends on preferred stock/shares outstanding
unsecured bonds
not backed by an asset, secured by full faith and credit of the borrower
copyright
an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book granted for the life of the creator plus 70 years
trademark
an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service granted for a period of 10 years but can be indefinite
term bonds
bond must be paid at single maturity date
franchise
contractual arrangement in which one entity grants the purchaser the exclusive right to use the trade name, formulas, and product rights within a specific geographical area for a specific period of time
treasury stock
corporations own stock that it has reacquired contra-equity account
convertible bonds
can convert bond to common stock
book value
cost of the asset - accumulated depreciation
depreciation expense
cost of the asset - residual value/service life
issued stock
shares actually sold (include treasury stock) authorized - unissued = issued
authorized stock
shares available to sell (issued and unissued)
outstanding
shares held by investors (excludes treasury stock) issued - treasury stock = outstanding
price-earnings ratio
stock price/earnings per share
debt to equity ratio
total liabilities/stockholder's equity
return on market value of equity
net income/(stock price * shares outstanding)
return on assets
net income/average total assets
profit margin ratio
net income/net sales
return on equity ratio
net income/total shareholders equity
asset turnover ratio
nets sales/average total assets
paid-in capital
amount stockholders have invested in the company
callable bonds
(redeemable bonds) repay bonds before maturity date at specific call price
disadvantages of corporation
additional taxes more paperwork
retained earnings
amount of earnings the corporation has retained
tangible assets
has physical substance ex. land, land improvements, buildings, equipment, and natural resources
intangible assets
lacks physical substance obtained through purchase or creation ex. patents, trademarks, copyrights, franchises, and goodwill
acid test ratio
quick assets/current liabilities quick assets = cash + current investments + accounts receivable
capitalize
recording an expenditure as an asset if it benefits future periods
serial bonds
require payments in installments
secured bonds
supported by specific assets the issuer has used as collateral
patent
the exclusive legal right to manufacture a product or use a process granted for a period of 20 years
goodwill
the value of a company as a whole recorded only when there is a purchase of another business
preferred stock
usually have first rights to dividends and distribution of assets
long term liabilities
usually paid after one year
current liabilities
usually paid within one year ex. notes payable, accounts payable, unearned revenue and payroll liabilities