Financial Leverage Impact Analysis
Financial Flexibility
Ability to adjust cash flows for unforeseen investment opportunities or needs
Long-term Solvency
Ability to meet all financial obligations, including long-term debts
Retained Earnings
Accumulated profits not distributed to shareholders, reinvested in the business
Explanatory Paragraph
Additional information emphasized in an unqualified audit opinion
Trade Receivables
Amounts owed by customers for goods or services sold on credit
Accounts Receivable
Amounts owed to a company for goods or services provided on credit
Nontrade Receivables
Amounts owed to a company from loans given to individuals or entities
Accounting Equation
Assets equal liabilities plus shareholders' equity, representing the balance sheet structure
Current Assets
Assets expected to be converted to cash within a year or operating cycle
Long-Term Assets
Assets expected to convert to cash in >1 year
Investments
Assets not directly used in business operations
Noncurrent Assets
Assets not expected to be converted to cash within a year
Long-term Assets
Assets not expected to be converted to cash within a year, like property and intangible assets
Intangible Assets
Assets representing exclusive rights
Unqualified Opinion
Auditor's opinion that financial statements comply with GAAP
Adverse Opinion
Auditor's opinion when financial statements do not comply with GAAP
Qualified Opinion
Auditor's opinion with exceptions like nonconformity with GAAP
Additional Paid-in Capital
Capital received above par value of stock
Deferred Revenues
Cash received for goods/services to be provided later
Other Long-Term Assets
Catch-all classification of long-term assets
Debt to Equity Ratio
Comparison of resources from creditors to owners
Ratio Analysis
Conversion of financial statement items into ratios
Prepaid Expenses
Costs paid in advance but not yet consumed, like prepaid rent or insurance
Accumulated Other Comprehensive Income
Cumulative gains/losses not included in net income
Working Capital
Current assets minus current liabilities
Paid-in Capital
Equity arising from capital contributions
Subsequent Events
Events occurring after year-end but before financial statement issuance
Auditors' Report
Examination of financial statements with opinion on fairness
Disclosure Notes
Explain financial statement data or provide additional information
Horizontal Analysis
Expressing items as a percentage of a base year amount
Vertical Analysis
Expressing items as a percentage of the total
GAAP
Generally Accepted Accounting Principles for balance sheet presentation
Inventory
Goods held for sale in the normal course of business, categorized as raw materials, work in process, or finished goods
Cash Equivalents
Highly liquid investments with short maturities, easily convertible to cash
Goodwill
Intangible asset representing the premium paid for acquiring another business
IAS No. 1
International Accounting Standard No. 1, revised to 'statement of financial position'
IFRS
International Financial Reporting Standards for balance sheet presentation
Operating Lease
Lease granting the right to use an asset for a period, without transferring ownership
Current Maturities of Long-Term Debt
Long-term debt payable within the next year
Management's Discussion and Analysis
Management's perspectives on significant events, trends, and uncertainties
Liquidity
Measure of how quickly assets can be converted to cash without significant loss
Unfavorable Financial Leverage
Negative impact of borrowing on shareholder returns
Times Interest Earned Ratio
Net income plus interest and taxes divided by interest expense
Liabilities
Obligations a company owes, such as debts, payables, and lease liabilities
Long-term Liabilities
Obligations due after a year, like long-term debts and lease liabilities
Noncurrent Liabilities
Obligations due beyond a year
Long-Term Liabilities
Obligations due to be settled in more than a year
Current Liabilities
Obligations due within a year, including short-term debts and payables
Accrued Liabilities
Obligations for expenses incurred but not yet paid
Accounts Payable
Obligations to suppliers for merchandise or services
Comparative Financial Statements
Present financial data for the current and previous years
Internal Control Procedures
Processes to ensure accurate financial reporting and compliance
Notes Receivable
Promissory notes specifying terms of repayment for amounts owed
Acid-Test Ratio
Quick assets divided by current liabilities
Current Ratio
Ratio of current assets to current liabilities
Balance Sheet
Reports a company's financial position at a specific point in time with assets, liabilities, and equity
Common Stock
Represents ownership in a company and entitles shareholders to voting rights
Equity
Residual interest in assets after deducting liabilities, representing shareholders' ownership
Assets
Resources owned by a company, including cash, investments, receivables, inventory, and property
Default Risk
Risk of a company being unable to pay obligations when due
Operational Risk
Risk related to events affecting a company's profit-making ability
Short-Term Investments
Securities intended to be sold within a year, like stocks or bonds
Net Assets
Shareholders' equity, also known as book value
Commercial Paper
Short-term unsecured promissory notes issued by corporations
Significant Accounting Policies
Summary of company's chosen accounting methods
Property, Plant, and Equipment
Tangible assets used in business operations
Deferred Income Taxes
Taxes not yet paid but will be in the future, affecting a company's cash flow
Shareholders' Equity
Total assets minus total liabilities
Related-party Transactions
Transactions between the company and owners, management, or affiliated parties
Favorable Financial Leverage
Using borrowed funds to increase shareholder returns
Book Value
Value of assets minus liabilities, not always reflecting a company's market value
Notes Payable
Written promises to pay cash at a future date
Annual Report
Year-end report with financial statements and additional disclosures