Financial Accounting 5

division, product line

ROA is often computed by ___ or ___

Gross Profit Percentage

measures a company's ability to charge premium prices and produce goods at a low cost

Gross Profit / Net Sales

Gross Profit Percentage is computed using this ratio

managing investments

ROA can be used to evaluate efficiency in ____ at any level within the organization

Net Income / Average Total Assets

Return on Assets = ____

EDGAR

SEC forms are filed through ___, sponsored by SEC

net income

a higher Gross Profit Percentage results in a higher ___

product differentiation

a strategy wherein companies rely on research and product promotion to convince customers of superiority or distinctiveness of products

8-K

auditor changes or mergers would be reported on Form __

SEC

determines the financial statements that public companies must provide to stockholders and measurement rules they must use

conference call

following a press release, during which senior managers answer analysts' questions about quarterly results

1

if a transaction affects the numerator and denominator by the same amount, the effect depends on whether the original ratio was greater, or less than, ___

financial analysts

receive accounting reports from electronic information services and company conversations to combine into reports

fair disclosure

requires that companies provide all investors equal access to all important company news

amortization

similar to depreciation for fixed assets, __ accounts report intangible assets

interest

subjecting a company's statements to independent verification should lower the ___ lenders charge for providing capital

financial reporting, stock exchanges

the SEC oversees __ and __

unexpected earnings

the difference between expected earnings and actual earnings; what the market reacts to

Net Income +/- Adjustments from noncash items = operating cash

the indirect method for reporting Cash Flows from Operating Activities

PCAOB

the private sector body responsible for issuing auditing standards

corporate governance

the procedures designed to ensure that the company is managed in the interests of the shareholders

mutual funds, charitable foundations, pension funds

three examples of institutional investors

press release

written public news announcement normally distributed to major news services

unusual, infrequent

Extraordinary Items are gains or losses that are both ___ and ___

Net Income / Net Sales

Net Profit Margin = ___

Net Sales / Average Total Assets

Total Asset Turnover

Form 8-K

Used by publicly traded companies to disclose any material event not previously reported that is important to investors

XBRL

a language tag used by EDGAR which enables fact retrieval

Sarbanes-Oxley

a law which strengthens US financial reporting and corporate governance regulations

low-cost

a strategy which relies on efficient management of accounts receivable, inventory, and productive assets to produce high asset turnover

information services

allows investors to gather their own information about the company and monitor recommendations

material amounts

amounts large enough to influence a user's decisions

unqualified audit opinion

an auditor's statement that the financial statements are fair presentations in all material respects in conformity with GAAP

venture capitalists

an example of a private investor

goodwill

an intangible asset representing the excess of the price paid for another company over the value of its identifiable assets

forecasts

analysts are regularly evaluated based on the accuracy of their ___

board of directors

elected by stockholders to represent their interests

GAAP

generally one of the first notes addresses which ___ policies the company has adopted

earnings per share

net income / average number of shares outstanding

gross profit

net sales - cost of goods sold

operating income

net sales - cost of goods sold + other operating expenses

intangible assets

no physical existence and a long life; include patents, trademarks, franchises, goodwill

audit committee

part of the board of directors, ensures that processes are in place for maintaining financial integrity

earnings forecasts

predictions of earnings for future accounting periods, prepared by financial analysts

accounting staff

prepare the details of financial reports, with smaller legal responsibility for professional accuracy

causes of differences

preparing the Operating Activities section using the indirect method helps the analyst understand the ___ between net income and cash flows

FASB

private sector body responsible for working out GAAP

cost effectiveness

requires that the benefits of accounting for and reporting information outweigh the costs

pretax earnings

revenues - all expenses except income tax expense

stock market reaction

stock price increases and decreases from investor trading

lenders

suppliers and financial institutions that lend money to companies

Business, Selected Financial Data, Management's Analysis, Financial Statements

the 4 principle components of the financial disclosures of a 10-K

Direct

the ___ method reports the total cash inflow(outflow) from each main type of transaction

Indirect

the ___ method starts with net income and adjusts it by eliminating the effects of transaction that do not involve cash

Form 10-K

the annual report that publicly traded companies must file with the SEC

Return on Assets

the broadest measure of profitability; measures how much the firm earned for each dollar of investment

CEO

the highest company officer, responsible along with management for financial statement information

CFO

the highest officer associated with a company's financial and accounting side

Form 10-Q

the quarterly report that publicly traded companies must file with the SEC

Rules, Additional Detail, Undisclosed Relevant Information

the three components of Footnotes

financial statements, footnotes, Auditor's Opinion

the three components of an annual report produced by a privately held company

incentive, opportunity, ability to rationalize

the three conditions necessary for financial statement fraud to occur

private investors

these individuals purchase shares in companies

banks, suppliers, commercial credit companies

three examples of lenders or creditors

forecasts, recommendations, explanations

three things contained within financial analysts' reports

increasing sales volume, increasing sales price, decreasing expenses

three ways to increase net profit margin

discontinued operations, extraordinary items

two items that companies may also report on their income statements

reducing inventory on hand, consolidating production factories

two ways to increase total asset turnover