Acc 132 Final Exam

net present value

-compares the present value of a project's cash inflows with the present value of its cash outflows. The difference between these two streams of cash flows

negative net present value

-indicates that the project's return is less than the discount rate. -project is not acceptable

Indirect method for operating activities

1. Add depreciation charges to net income. 2. Analyze net changes in non-cash balance sheet accounts. 3. Adjust for gains and losses.

sales on account / average accounts receivable

Accounts receivable turnover

investing activities

Acquiring or disposing of non-current assets -Sale of Property, plant and equipment Any changes on PPE on the balance sheet

preference decisions

Attempt to rank acceptable alternatives from the most to least appealing

financing activities

Borrowing from and repaying principal to creditors and transactions with stockholders -Changes in long term payables/notes Changes in common stock Any dividends

current assets / current liabilities

Current ratio

screening decisions

Pertain to whether or not some proposed investment is acceptable; these decisions come first

operating activities

Revenue and expense transactions that affect net income

Working capital

The excess of current assets over current liabilities

b. A side-by-side comparison of two or more years' financial statements

Which of the following statements describes horizontal analysis? a. A statement that shows items appearing on it in percentage and dollar form. b. A side-by-side comparison of two or more years' financial statements. c. A comparison of the account balances on the current year's financial statements. d. None of the above.

a. Negative financial leverage is when the fixed return to a company's creditors and preferred stockholders is greater than the return on total assets.

Which of the following statements is true? a. Negative financial leverage is when the fixed return to a company's creditors and preferred stockholders is greater than the return on total assets. b. Positive financial leverage is when the fixed return to a company's creditors and preferred stockholders is greater than the return on total assets. c. Financial leverage is the expression of several years' financial data in percentage form in terms of a base year.

post-audit

a follow-up after the project has been completed to see whether or not expected results were actually realized.

total cash + marketable securities + accounts receivable + short term notes / current liabilities

acid test ratio

365 days / accounts receivable turnover

average collection period

365 days / inventory turnover

average sale period

beginning balance + debits - credits = ending balance

basic equation for asset accounts

beginning balance - debits + credits = ending balance

basic equation for contra asset, liability, and stockholder's equity accounts

common stockholder's equity / number of common shares outstanding

book value per share

total liabilities / stockholder's equity

debt-to-equity ratio

dividend per share / earnings per share

dividend payout ratio

dividend per share / market price per share

dividend yield ratio

net income / average number of common shares outstanding

earnings per share

average total assets / average stockholder's equity

equity multiplier

gross margin / sales

gross margin percentage

positive net present value

indicates that the project's return exceeds the discount rate. -project is acceptable

cost of goods sold / average inventory

inventory turnover

net income / sales

net profit margin percentage

average sale period + average collection period

operating cycle

investment required / annual net cash inflow

payback period

market price per share / earnings per share

price earnings ratio

typical cash inflows

reduction of costs, incremental revenues, release of working capital, salvage value

typical cash outflows

repairs and maintenance, working capital, initial investment, incremental operating costs

net income / average stockholder's equity

return on equity

payback period

the length of time that it takes for a project to recoup its initial cost out of the cash receipts that it generates

internal rate of return

the rate of return promised by an investment project over its useful life. It is computed by finding the discount rate that will cause the net present value of a project to be zero

earnings before interest expense and income taxes / interest expense

times interest earned

sales / average total assets

total asset turnover

current year amount / base year amount

trend percentage