chapter 14 accounting 6010
primary factors in evaluating the quality of working capital include
(1) the nature of the current assets and (2) the length of time required to convert those assets into cash.
Quick Ratio
(Current Assets - Inventory) / Current Liabilities
Price/Earnings (P/E) Ratio
A measure of investors' expectations about the company's future prospects , reflects investors expectations, based on an assessment of the future
Current Ratio
CA/CL
inventory turnover rate
COGS/Average Inventory
Interest Coverage Ratio
EBIT/ interest expense
Gross Profit Rate
Gross profit expressed as a percentage of sales; computed as gross profit divided by net sales.
Return on Equity (ROE)
Net Income / Average Stockholders' Equity
Return on Equity
Net Income / Average total equity
Quick Ratio
The quick ratio compares the most liquid current assets (cash, marketable securities, and receivables) with current liabilities.
which of the following would you expect to find in notes to financial statements
accounting policies and methods used in FS, assets pledged to secure specific liabilities, significant commitments and contingencies
the ratio that indicates how quickly a company converts its account receivable into cash is called the
accounts receivable turnover rate
reconcile net income to net cash
add depreciation
reconcile net income to net cash
add increase in accounts payable
reconcile net income to net cash
add increase in notes payable to creditors
reconciling a company's net income to its net cash from operating activities includes subtractions for which of the following
an increase in accounts receivable, a decrease in accrued liabilities
base number (denominator) in the calculation of return on assets is
average total assets : ROA = OI / average total assets
component percentage for plant and equipment: a company has TA 1.5M, sales of 4M, Plant and equipment less depreciation of 300000.
calculate plant and equipment as percentage of net assets
if a business fails the claims of __take priority over those of the owners
creditors
widely used measure of liquidity that includes all current assets is referred to as the ____ ratio
current
assets that are relatively liquid and are expected to become cash in the relative near future are called
current assets
which of the following is NOT a section you would find in a classified income statement
current assets
Working Capital
current assets (cash, marketable securities, notes receivable, accounts receivable, inventory, prepaid expenses)- current liabilities (notes payable < short time, accounts payable, taxes payable, accrued expenses payable, unearned revenue and customer deposits)
which of the following is/are correct about the debt ratio?
debt ratios of companies vary by industry, the lower the debt ratio, the safer the position of creditors
which of the following is/are particularly relevant to a company's common stockholders if they are interested in receiving regular cash income?
dividend yield, earnings per share, price-earnings ratio
which of the following is/are particularly relevant to a company's common stockholders
dividend yield, price earnings ratio
accounts receivable turnover rate
dividing net sales by the average balance of accounts receivable, the ratio that indicates how quickly a company converts its accounts receivable into cash
which of the following best describes the meaning of leverage
earning more on debt than the cost of debt enhancing the investment of common stock holders equity
the calculations of the current ratio includes all of the following in the numerator except
equipment, retained earnings
T/F annual reports of public companies are made available only to that company's creditors and stockholders
false
T/F: ratios compare only amounts within a single financial statement or a statement of financial position (balance sheet)
false
T/F the single step income statement and the multiple step income statement for the same company for the same year will result in different net income figures
false, same and eps same
inventory turnover rate
how many times during the year the company is able to sell a quantity of goods equal to its average inventory.
the most common approaches used for financial analysis compare info about a company in a single accounting period with
info about other companies in the same industry, info a out the same company in different accounting periods
the ratio that indicates how many times during the year the company is able to sell a quantity of goods equal to its average inventory is called the
inventory turnover rate, NOT ratio
which of the following does NOT accurately describe price-earnings ratio?
it reflects a company's liquidity, it reflects a company's rate of inventory turnover
quality of earnings
judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the
the ability of a company to meet its continuing obligations is referred to as
liquidity
Price/Earnings (P/E) Ratio
market price per share/earnings per share
dividend yield
most recent dividend/market price of stock
an income statement that includes subtotals of profitability at intermediate steps is called a ___income statement
multiple-step
the general formula for earnings per share
net income/shares of cap stock outstanding or NI/# of shares of common stock outstanding
Gross Profit
net sales - cost of goods sold
the length of time required to invest cash in inventory, sell the inventory and collect the receivale is referred to as
operating cycle
Return on Assets (ROA)
operating income/average total assets
operating cycle
period of time required for a merchandising company to convert its inventory into cash
factors helpful in judging the quality of working capital include all of the following except
principal factors affecting the quality of working capital are (1) the nature of the current assets and (2) the length of time required to convert those assets into cash. 3) turnover ratios
judging the impact on earnings of the specific accounting methods a company chooses is sometimes referred to as the ___ earnings
quality
the income statement format that groups all revenues together less all expenses grouped together, with no intermediate subtotals in arriving at net income is the
single step income statement
reconcile net income to net cash
subtract decrease in accrued liabilities
reconcile net income to net cash
subtract increase in AR
reconcile net income to net cash
subtract increase in inventories
reconcile net income to net cash
subtract increase in prepaid expenses
the percentage that inventory represents of the total assets in a statement of financial position (balance sheet) is called
the component percentage
Measures of Profitability include all of the following except
the current ratio gross profit rate, operating income, Earnings Per Share, Book Value per Share, Price-Earnings Ratio, Return on Sales, Return on Equity
which of the following is NOT a factor in judging a company's liquidity?
the depreciation of plant assets
primary factors in evaluating the quality of working capital include
the nature of current assets, the length of time required to convert current assets into cash
interest coverage ratio or times interest earned
the ratio of operating income available for the payment of interest to the annual interest expense
which of the following is/are correct about the annual report of companies?
they often include multi year summaries of comparative info about the company, they include management's own discussion and analysis of important aspects of the company
which of the following is NOT a goal of financial accounting information?
to demonstrate a company's compliance with tax law IS a goal, provide info for identifying key trends and relationships, to provide economic decision makers with useful info
Debt Ratio
total liabilities/total assets
changes in a company's revenues, expenses, operating income are referred to as
trends
changes in a company's revenues, expenses, operating income, and net income are referred to as____in earning
trends
the basis or denominator for computing a percentage change from year 1 to year 2 is
year 1 amount
trend percentage
year/base year