AC102: Ch 15-17
The oldest year in trend analysis is always ____%
100
Debt ratio and equity ratio added together must equal ____.
100%
The base period in trend analysis will always be what percentage?
100%
What will always be our common size percentage for our sales or revenue in vertical analysis?
100%
What will always be our common size percentage for our total assets in vertical analysis?
100%
Define cash equivalent
Investments that are both readily converted to known amounts of cash and mature within three months. short term, highly liquid investments that are readily convertible to cash and are sufficiently close to maturity so value of interest is not affected by interest rate changes (ex. money market funds)
Why does a company use average assets to calculate return on assets?
It gives them a sharper analysis of the many assets they have and be specific on which areas have the greatest return
Why do we need the income statement for SOCF?
It tells us what happened during the year in relation to income and expenses
Why do we add depreciation back to net income?
It was subtracted on the income statement, and you need to add it back to cancel out its non-cash value
Why do we use fair value to value both the trading and AFS securities?
It's the way we record gain/loss on revaluation
What are the four sections of financial statement analysis?
Liquidity/efficiency, Solvency Profitability Market prospects
Which investment length would you classify AFS securities if the securities will not be sold within a year?
Long term AFS
Which change begs more questions in horizontal analysis?
Percent change
Which ratio has to do with finding the market value relative to earnings?
Price earnings ratio
Define vertical analysis
Comparison of a company's financial condition and performance to a base amount
Define horizontal analysis
Comparison of a compnahy's financial condition and performances across time
Which ratio has to do with the efficiency of inventory management?
Inventory turnover
Inflow/outflow on what section of the SOCF?: To buy property, plant, and equipment
Outflow, investing activities
Inflow/outflow on what section of the SOCF?: To buy short-term investments EXCEPT trading
Outflow, investing activities
Inflow/outflow on what section of the SOCF?: To loan money in return for notes receivable
Outflow, investing activities
Inflow/outflow on what section of the SOCF?: To pay salaries and wages
Outflow, operating activites
Inflow/outflow on what section of the SOCF?: To buy trading securities
Outflow, operating activities
Inflow/outflow on what section of the SOCF?: To pay interest owed
Outflow, operating activities
Inflow/outflow on what section of the SOCF?: To pay operating expenses
Outflow, operating activities
Inflow/outflow on what section of the SOCF?: To pay suppliers for goods and services
Outflow, operating activities
Inflow/outflow on what section of the SOCF?: To pay taxes and finances
Outflow, operating activities
Inflow/outflow on what section of the SOCF?: To pay taxes and fines
Outflow, operating activities
Which ratio has to do with finding net income in each sales dollar?
Profit margin ratio
What's the main difference between trend analysis and horizontal analysis?
The number of years
In trend analysis, which year is our base year?
The oldest year
The exact reporting requirements for non influential investments depend on whether the investments are classified as ...
(1) trading, (2) held- to-maturity, or (3) available-for-sale.
Calculate common size percent
(Analysis amount / base amount) * 100
Calculate percent change
(Analysis period amount - base period amount)/base period amount x 100 OR (Dollar change/base period amount)100
What are the two things you use to adjust significant influence investments (at original cost) with?
+ shared income - dividends
What are the five categories of investments?
1. Trading, 2. Held-to-Maturity (HTM), 3. Available for Sale (ATM), 4. Significant Influence, and 5. Controlling Influence
What are the five steps to preparing SOCF?
1. Calculate the net increase or decrease in cash, 2. Calculate the cash flow from operations, 3. Calculate the cash flow from investing, 4. Calculate the cash flow from financing, and 5. Prove the result
Under what two conditions should investments be classified as current assets?
1. Capable of being converted into cash quickly, and 2. Management must intend to sell the investments as a source of cash to satisfy the needs of current operations (within one year or the operating cycle, whichever is longer).
What are the three motivations for investment?
1. Companies transfer excess cash into investments to produce higher income. 2. Some companies are set up to produce income from investments. 3. Companies make investments for strategic reasons.
Which seven ratios are our liquidity and efficiency ratios?
1. Current ratio, 2. Acid test ratio, 3. A/R turnover, 4. Inventory turnover, 5. Days' sales uncollected, 6. Days' sales in inventory, 7. Total asset turnover
Which four ratios are our solvency ratios?
1. Debt ratio, 2. Equity ratio, 3. Debt-to-equity ratio, and 4. Times interest earned
What do you need to know about exchange rates between currencies?
1. Each country uses its own currency for internal economic transactions. 2. To make transactions in another country, units of that country's currency must be acquired. 3. The cost of those currencies is called the exchange rate.
What are the three most common tools of financial analysis?
1. Horizontal analysis 2. Vertical analysis 3. Ratio analysis
Which two ratios have to do with market prospects?
1. Price earnings ratio, and 2. Dividend yield
Which six ratios are our profitability ratios?
1. Profit margin ratio, 2. Gross margin ratio, 3. Return on total assets, 4. Return on common stockholder's equity, 5. Book value per common share, and 6. Basic earnings per share
Why do we create financial statements and analyze them?
1. Reduces uncertainty 2. Analytical tools 3. Transforming data
What are six examples of noncash investing and financing activities?
1. Retirement of debt by issuing equity stock, 2. Conversion of preferred stock to common stock, 3. Lease of assets in a capital lease transaction, 4. Purchase of long-term assets by issuing a note or bond, 5. Exchange of noncash assets for other noncash assets, 6. Purchase of noncash assets by issuing equity or debt
What three factors do accounting for investments depend on?
1. Security type: Is it debt or equity?, 2. Intent to hold the security short or long term, and 3. Percentage of ownership in another company's equity securities
What two things do you need to do to compute trend percents?
1. Select a base period and assign each item in the base period a weight of 100% 2. Express financial numbers as a percent of their base period number
What two major accounting challenges arise when companies have international operations?
1. They must account for sales and purchases listed in a foreign currency. 2. They must prepare consolidated financial statements with international subsidiaries.
What documents can you find from the SEC that can help you with financial analysis?
10K and 10Q
You only need _ periods to perform a normal horizontal analysis
2
You're more like an owner once your investment is worth more than..
20%
What do you need to know about securities held under significant influence?
20-50% of securities company has issued, valued with equity method, original investment is recorded at cost, The investment account is increased by a proportionate share of investee's earnings, the investment account is decreased by dividends received.
You need at least _ periods to perform a trend analysis
3
What constitutes as a normal PE ratio?
7, depending on the industry
What do you need to know about securities held under controlling influence?
> 50% of securities company has issued, valued with equity method and consolidation (in financial statements, which show the financial position, results of operations, and cash flows of all entities under the parent's control)
Consolidation only occurs when an investor has ________.
A controlling interest (owns 50%+)
Define trend analysis
A subsection of horizontal analysis that can reveal patterns in data across successive periods
Which ratio has to do with efficiency of collection?
A/R turnover
Define solvency in financial statement analysis
Ability to generate future revenues and meet long-term obligations
Define marketing prospects in financial statement analysis
Ability to generate positive market expectations
Define liquidity and efficiency in financial statement analysis
Ability to meet short-term obligations and to efficiently generate revenues
Define profitability in financial statement analysis
Ability to provide financial rewards sufficient to attract and retain financing
Which ratio has to do with immediate short-term debt-paying ability?
Acid test ratio
Why is it called horizontal analysis?
All of the calculations are done in a horizontal line
You might effectively have a controlling interest even with significant influence in the case that..
All of the other holders are trading
Premiums/discounts on bonds must be _______.
Amortized
Calculate dollar change
Analysis period amount - base period amount
Calculate trend percent
Analysis period amount/base period amount x 100
How can you tell if a company is doing well/poorly?
Compare the current data to prior periods or the current data of competitors in the same industry
Define financial statement analysis
Applying analytical tools to general-purpose financial statements and related data for making business decisions
When does revaluation occur?
At the end of the fiscal year
Fair value has to do with which kinds of investments?
Available for sale and trading
AFS can get parked in what financial statement?
Balance Sheet
Where do you record gain/loss for AFS securities?
Balance sheet (Gain) or Stockholder's Equity (Loss)
Where do we record gain for AFS securities?
Balance sheet under Other Comprehensive Income (OCI)
What two things do we need to know to calculate common size percent?
Base amount and financial sheet
To find the price earnings ratio, you need to have which ratio?
Basic earnings per share
Which ratio has to do with finding the net income per common share?
Basic earnings per share
Which ratio is considered so important that it must appear on the face of every income statement?
Basic earnings per share
Which ratio has to do with finding the liquidation at reported amount?
Book value per common share
Direct method
Calculate how much cash we received from customers, either from cash records, columns, calculations involving observing changes in balances,
Depreciation expense does not involve ____.
Cash
If you had an entirely cash business, your net income would come from your ...
Cash
The profit of the period for trading securities is determined by what is currently present in which securities?
Cash
Money market funds are an example of what?
Cash equivalents
Indirect method focuses on
Changes in balancing accounts
How do you prove the net increase or decrease in cash with the SOCF?
Combine net
Vertical analysis produces what kind of B.S. and I.S.?
Common size
Vertical analysis is also known as
Common size analysis is also known as
The __________ column has to do with vertical analysis
Common size percent
What documents are needed to put the SOCF together?
Comparative Balance Sheet (from this and last year), Income Statement, and Additional information
How should we view the operating activities on SOCF?
Core business of company. Are they generating cash, or are they using it for their core business? Related to current assets and liabilities
How do you use the equity method?
Cost + share of income - dividends
Calculate for cash received on sale (applies to investment section on SOCF)
Cost - acc dep +/- gain/loss on sale
If a short-term investment in AFS securities costs $10K and is sold for $12K, how should the difference b/w them be recorded?
Cr. Gain on Sale of ST Investments in the income statement
Define working capital
Current assets - current liabilities
Which ratio has to do with short-term debt-paying ability?
Current ratio
Which ratio has to do with the liquidity of inventory?
Days' sales in inventory
Which ratio has to do with the liquidity of receivables?
Days' sales uncollected
What do you need to know about AFS securities?
Debt and equity securities not classified as trading or held-to-maturity, Not actively managed. Report as either ST or LT investments. Valued at fair value. Unrealized gains or loss reported in the equity section of the balance sheet as part of comprehensive income.
What do you need to know about trading securities?
Debt and equity securities, Actively managed and traded for profit, Frequent purchases and sales expected, Reported at fair value, Unrealized gain or loss reported in the income statement.
Which ratio has to do with creditor financing and leverage?
Debt ratio
What do you need to know about HTM securities?
Debt securities, Intent and ability to hold until maturity, reported at amortized cost with no fair value adjustment to the portfolio.
Which ratio has to do with debt versus equity financing?
Debt-to-equity ratio
Define spread
Difference b/w buying price and sales price
Which method is better to put together the SOCF?
Direct method
What two methods are used to put together SOCF?
Direct method and indirect method
Which ratio has to do with finding cash return per common share?
Dividend yield
Retained earnings go ____ whenever the company releases dividends
Down
Journal entry to complete purchase of something in a foreign currency with a loss
Dr. A/P (Foreign Company) (to cancel account, remember yearly adjustment!) Cr. Foreign Exchange Gain (difference b/w two) Cr. Cash (purchase price x current exchange rate)
Journal entry to complete purchase of something in a foreign currency with a loss
Dr. A/P (Foreign Company) (to cancel account, remember yearly adjustment!) Dr. Foreign Exchange Loss (difference b/w two) Cr. Cash (purchase price x current exchange rate)
Journal entry to record gain on sale for foreign exchange at year end
Dr. A/R (Foreign Company) Cr. Foreign Exchange Gain (for the amount of gain)
Journal entry to sell something where customer pays in local currency.
Dr. A/R (Foreign Company) Cr. Sales (foreign currency x exchange rate on date of sale)
Journal entry to sell trading securities with a gain on sale
Dr. Cash (Selling Price) Cr. Gain on Sale Cr. Trading Securities (to cancel it out) Cr. Fair Value Trading (to cancel it out)
Journal entry to sell trading securities with a loss on sale
Dr. Cash (Selling Price) Dr. Loss on Sale Cr. Trading Securities (to cancel it out) Cr. Fair Value Trading (to cancel it out)
Journal entry to adjust long term investments with significant influence where retained earnings has decreased
Dr. Cash (X% of income-dividend) Cr. L/T Investment (X% of income-dividend)
Journal entry to sell AFS securities above fair value
Dr. Cash (sale price) Dr. Unrealized Gain (in balance sheet) Cr. Securities AFS (to cancel it out) Cr. Fair Value AFS (to cancel it out) Cr. Realized Gain on Sale
Journal entry to record loss on sale for foreign exchange at year end
Dr. Cash (the amount you're currently getting based on current exchange rate) Dr. Foreign Exchange Loss (difference b/w others) Cr. A/R (Foreign Company) (Current amount in A/R. Remember adjustments!)
Journal entry to revalue AFS securities above fair value
Dr. Fair Value AFS Securities Cr. Fair Value - Equity
Journal entry to adjust fair value at year end for AFS securities, long term
Dr. Fair Value Adjustment AFS/LT Cr. Unrealized Gain (to balance T account for unrealized G/L)
Journal entry to revalue trading securities when price goes above fair value
Dr. Fair Value Trading Securities (Revaluation - OC) Cr. Fair Value - Income (Revaluation - OC)
Journal entry to purchase something in a foreign currency (to set up liability)
Dr. Inventory Cr. A/P (Foreign Company) (purchase price x current exchange rate)
Journal entry to invest in long term investment with significant influence
Dr. L/T Investments (X% of Income) Cr. Cash (X% of income)
Journal entry to adjust long term investments with significant influence where retained earnings has increased
Dr. L/T Investments (X% of current income) Cr. Earnings from L/T Investments (X% of current income)
Journal entry to buy trading securities
Dr. Securities - Trading Cr. Cash
Journal entry to sell AFS securities
Dr. Securities AFS Cr. Cash
If a company purchases its own long-term investments in AFS debt securities this period and their fair value is below cost at the balance sheet date, what entry is required to recognize this unrealized loss?
Dr. Unrealized loss - Equity Cr. Fair Value Adjustment—Available-for-Sale (LT)
Gross profit margin shows us what?
EBIT
What would an economist say vs a financial analyst on an increase in net sales, but a larger increase in COGS?
Economist would say it's a good thing, regardless, because your income is higher. Financial analyst would emphasize the pressure being placed on COGS's larger increase as something to be concerned about.
What three items should you remember to make T charts for in SOCF?
Equipment, Accumulated Depreciation, Retained Earnings
Which ratio has to do with owner financing?
Equity ratio
Define exchange rate
Expressed as a decimal, how much of one currency is worth of another currency
On a balance sheet, what valuation must be reported for debt securities classified as AFS?
Fair (market) value—this is separated into short- and long-term.
True or false: Fair Value Adj is found in Stockholder's Equity
False. It's in
FX rate
Foreign exchange rate
Which ratio has to do with finding the gross margin in each sales dollar?
Gross margin ratio
Which securities are always long term investments?
HTM
Amortized cost has to do with which kinds of investments?
Held to maturity
Under what circumstances does a company prepare consolidated financial statements?
If the company has control over a subsidiary as a result of owning more than 50% of the subsidiary's voting stock.
In what situation are HTM securities recorded as non-current assets?
If their maturity dates are longer than one year or the normal operating cycle, whichever is longer.
In what situation are HTM securities recorded as current assets?
If their maturity dates are within one year or the operating cycle, whichever is longer.
Where does the risk come in for foreign trading?
If we're buying it in another currency, we don't know how many dollars it will cost us to buy that fixed amount of euros, and vice versa. The price is not fully realized until the purchase is processed.
Where do you record gain/loss for the trading securities?
Income statement
Where do we get our financial information from?
Income statement balance sheet statement of
Where does gain on sale for AFS securities get recorded?
Income statement (Cr)
Which method of putting together SOCF is more often used by companies?
Indirect method
Inflow/outflow on what section of the SOCF?: From contributions by owners
Inflow, financing activities
Inflow/outflow on what section of the SOCF?: From issuing common and preferred stock
Inflow, financing activities
Inflow/outflow on what section of the SOCF?: From issuing short- and long-term debt (notes payable and bonds payable)
Inflow, financing activities
Inflow/outflow on what section of the SOCF?: From reissuing treasury stock
Inflow, financing activities
Inflow/outflow on what section of the SOCF?: From collecting principle on notes receivable
Inflow, investing activities
Inflow/outflow on what section of the SOCF?: From selling (discounting) notes receivable
Inflow, investing activities
Inflow/outflow on what section of the SOCF?: From selling intangible assets
Inflow, investing activities
Inflow/outflow on what section of the SOCF?: From selling long-term investments
Inflow, investing activities
Inflow/outflow on what section of the SOCF?: From selling property, plant, and equipment
Inflow, investing activities
Inflow/outflow on what section of the SOCF?: From selling short-term investments EXCEPT trading
Inflow, investing activities
Inflow/outflow on what section of the SOCF?: From cash sales to customers
Inflow, operating activities
Inflow/outflow on what section of the SOCF?: From collections on credit sales
Inflow, operating activities
Inflow/outflow on what section of the SOCF?: From receipt of dividend revenue
Inflow, operating activities
Inflow/outflow on what section of the SOCF?: From receipt of interest revenue
Inflow, operating activities
Inflow/outflow on what section of the SOCF?: From sale of trading securities
Inflow, operating activities
How should we view the financing activities on SOCF?
Long term debt and equity. Ex. Issuing shares/bonds generates cash. Paying off bonds decreases cash. Long term liabilities and equity.
What is the key point to financial analysis?
Manipulating the data to give us deeper incite on what's going on, and begging the question: "Should I delve deeper?"
Define ratio analysis
Measurement of key relations between financial statement items
If a U.S. company makes a credit sale to a foreign customer required to make payment in US dollars, can the US company have an exchange gain or loss on this sale?
No. If a sales agreement requires a foreign customer to pay U.S. dollars to the United States seller, the U.S. company is not exposed to the risk of exchange losses or gains
ID 3 classes of noninfluential and two classes of influential investments in securities
Noninfluential: debt/equity Trading, debt/equity HTM, and debt/equity AFS. Influential: Significant Influence, Controlling Influence
What are the three sections of SOCF?
Operating, Investing, Financing
Inflow/outflow on what section of the SOCF?: To pay dividends to shareholders
Outflow, financing activities
Inflow/outflow on what section of the SOCF?: To pay off short- and long-term debt (notes payable and bonds payable)
Outflow, financing activities
Inflow/outflow on what section of the SOCF?: To pay withdrawals by owners
Outflow, financing activities
Inflow/outflow on what section of the SOCF?: To purchase treasury stock
Outflow, financing activities
Inflow/outflow on what section of the SOCF?: To buy intangible assets
Outflow, investing activities
Inflow/outflow on what section of the SOCF?: To buy long-term investments
Outflow, investing activities
Which ratio has to do with finding the profitability of the owner's investment?
Return on common stockholder equity
Which ratio has to do with finding the overall profitability of the assets?
Return on total assets
What do you still have to do to AFS accounts you wouldn't do with trading accounts?
Revalue them in the balance sheet
What's the largest number in the income statement?
Revenues or Sales
Income statement is to financial statements as _______ is to base amount in vertical analysis.
Revenues or sales
If you see an increase of cash in horizontal analysis on your comparative balance sheet, what financial statement would you want to take a look at for more information?
SOCF
Define long term investments
Securities that are not readily convertible to cash, are not intended to be converted to cash in the short term, and are reported in the noncurrent section of the balance sheet, often in its own category.
Define short term investments
Securities that management intends to convert to cash within one year or the operating cycle (whichever is longer) and are readily convertible to cash.
Define debt securities
Securities that reflect a creditor relationship Examples: Investments in notes, bonds, and CDs May be issued by governments, companies, or individuals
Define equity securities
Securities that reflect an owner relationship Examples: Investments in shares of stock Issued by companies
Which investment length would you classify AFS securities if the intent is to sell securities within one year or the normal operating cycle (whichever is longer)?
Short term AFS
Why would an investor choose to put qualify their securities as AFS securities instead of trading securities?
So you can hang on to it, decide when you want to sell it, and not have all of these ups/downs in the income statement
Where would we find the net increase or decrease in cash?
Subtract last year's cash from this year's cash, looking at the balance sheets of those respective years
What mostly affects stock price in America?
The affect on poor earnings
How do you find the weighted average?
The average over the year (add up all values for each month and divide by 12)
In accounting for investments in equity securities, when should the equity method be used?
The equity method is used when the investor has a "significant influence" over the investee corporation; i.e., generally when the investor owns 20% or more of the investee's voting stock. The equity method with consolidation is used when the investor has a "controlling influence" over the investee.
What do consolidated financial statement show?
The financial position, results of operations, and cash flows of all entities under the parent's control
Under what circumstances are long-term investments in debt securities reported at cost and adjusted for amortization of any difference between cost and maturity value?
The portfolio of long-term investments in debt securities is reported at cost adjusted for amortization of any difference between cost and maturity when the investments are classified as held-to-maturity debt securities.
Why do we add back losses on sale and subtract gains on sale to net income?
They were gains or losses achieved through non-cash interactions
Which ratio has to do with protection in meeting interest payments?
Times interest earned
Which ratio has to do with the efficiency of assets in producing sales?
Total asset turnover
Balance sheet is to financial statements as _______ is to base amount in vertical analysis.
Total assets
What's the largest number in the balance sheet?
Total assets
True or false: the only difference between trading securities account and the AFS securities account upon purchase is the account the sale affects
True
What are two major challenges in accounting for international operations?
Two major challenges in accounting for international operations include (1) accounting for sales and purchases that are denominated in a foreign currency, and (2) preparing consolidated financial statements with a foreign subsidiary.
Retained earnings go ____ whenever company makes income
Up
Define consolidation
We merge the income statements and balance sheet, grossing up categories for our share of that company (Cash + X% of company's cash, A/R + X% of company's A/R, etc.)
Why is it called vertical analysis?
We're going up and down the income statement
Why do we do vertical analysis?
We're looking at the components of the financial statements and note the changes over a year
Why do we amortize bonds?
We've committed to hold the bonds to maturity. We can't change our minds upon purchasing them as HTM.
What's the difference between AFS and trading securities?
Where gain/loss is recorded
How should we view the investing activities on SOCF?
Where the company is spending their money on long term assets. Ex. Machinery purchase is an investing activity that uses funds. If we sell an asset, that generates cash under investing activities. Long term assets.
What if you wanted to sell
You'd have to sell all of your other HTM securities (your trust is broken with other companies as well)
Income statement is on a __________ basis
accrural
We add/subtract losses on sale from the net income for SOCF
add
Define comprehensive income
all changes in equity during a period except those from owners' investments and dividends.
Horizontal analysis involves the use of ________ statements.
comparative
Equity securities are recorded _____ when acquired, including commissions or brokerage fees paid. Any cash dividends received are credited to _________________ and reported in the __________. When the securities are sold, sales proceeds are compared with ____, and any gain or loss is recorded.
at cost; Dividend Revenue; income statement; cost
Debt securities are recorded ____ when purchased. Interest revenue for investments in debt securities is recorded when _____.
at cost; earned
Available for sale security gain/loss is recorded in which statement?
balance sheet
Trend analysis expresses a percent of ____, not a percent of change.
base
The equity method with ______________ is used to account for long-term investments in equity securities with controlling influence.
consolidation
In stockholder's equity, a loss in fair value for AFS securities is recorded as a debit/credit
debit
You should look at these two ratios simultaneously to see where company financing is happening:
debt ratio and equity ratio
Use of funds
decrease in cash
Short term investments do/do not include cash equivalents
do not
On a balance sheet, what valuation must be reported for short-term investments in trading securities?
fair (market) value of the portfolio of trading securities
Companies must value and report most non influential investments at ____________.
fair value
Consolidated ________________ show the financial position, results of operations, and cash flows of all entities under the parent's control, including all subsidiaries.
financial statements
Think of selling an asset as a ____ in cash.
gain
If I buy a bond at a discount, the par value will be ____ than the original cost
greater
You debit your fair value account in trading securities when fair value is greater/less than original cost
greater
In a spread, you would sell _____ than you'll buy.
higher
Trend analysis is a subset of __________ analysis
horizontal
Trading security gain/loss is recorded in which statement?
income statement
Companies want to see their earnings per share increase/decrease
increase
Source of funds
increase in cash
A credit to fair value - income _______ the value on the income statement
increases
The base amount will always be the _____ number in the respective financial statement in vertical analysis
largest
If I buy a bond at a premium, the par value will be ____ than the original cost.
less
You credit your fair value account in trading securities when fair value is greater/less than original cost
less
Is it better to have more assets or less assets in relation to profitability?
less assets
Think of using funds as a _____ in cash.
loss
Equity is considered a more/less stable financing method than debt.
more
Gross margin ratio should equal more/less than the profit margin ratio
more
Debt financing is more/less expensive than equity financing, because...
more, they involve annual interest payments
Under what condition should investments be classified as current assets?
must be capable of being converted into cash quickly and management must intend to sell the investments as a source of cash to satisfy the needs of current operations
Under what condition should investments be classified as long-term assets?
must not meet the requirements for short-term investments—not marketable and not intended to be converted into cash. Also include funds earmarked for a special purpose, and other assets not used in company operations
Trend percent is always recorded as ..
percentages
For investments in AFS securities, how are unrealized (holding) gains and losses reported?
reported in the stockholders' equity section of the balance sheet and not on the standard income statements. (They can also be reported either in a separate comprehensive income statement or in a combined statement of comprehensive income.)
As market price rises, PE ratio ____.
rises
We add/subtract gains on sale from the net income for SOCF
substract
What is the advantage of debt financing over equity financing?
tax deductions
The analysis period in horizontal analysis is ...
the current year
The base period in horizontal analysis is ...
the prior year
Which securities are always short term investments?
trading securities
Equity section represents ...
what the shareholders own (+/-)
Horizontal analysis gives you the means to specify ...
what to question
You need __________ to run a business
working capital
