Acct 222 Exam 2
Horizontal Analysis
(or trend analysis) refers to studying the behavior of individual financial statement items over several accounting periods
Par Value
is an arbitrary amount assigned to each share of stock when it is authorized.
Manufacturing Overhead
Other factory costs such as indirect materials and labor, utilities, rent, security, and depreciation.
The ownership interest (equity) in a business is composed of:
Owner/shareholder contributions and retained earnings
Return on Equity
This measure is often used to measure the profitability of the stockholders' investment. Net Income/Average total Stockholders Equity
Price Earnings Ratio
This ratio compares the earnings of a company to the market price for a share of the company's stock. Market Price per Share/Earnings per Share
Dividend Yield
This ratio identifies the return, in terms of cash dividends, on the current market price of the stock. Dividends per Share/Market Price per Share
Debt to Equity Ratio
This ratio indicates the relative proportions of debt to equity on a company's balance sheet. Total Liabilities/Total Stock Holders Equity
Average Sale Period
This ratio measures how many days, on average, it takes to sell the inventory. 365 Days/Inventory Turnover
Asset Turnover Ratio
This ratio measures how many sales dollars were generated for each dollar of assets invested Net Sales/Average Turnover Assets
Accounts Receivable Turnover
This ratio measures how many times a company converts its receivables into cash each year. Net Credit Sales/Arrange Accounts Receivable
Inventory Turnover
This ratio measures how many times a company's inventory has been sold and replaced during the year. Costs of Average Goods Sold/Average Inventory
Book Share Value
This ratio measures the amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts and if all creditors were paid off
Debt to Assest Ratio
This ratio measures the percentage of a company's assets that are financed by debt. Total Liabilities/Total Assets
Average Collection Period
This ratio measures, on average, how many days it takes to collect an accounts receivable. 365 days/ Accounts Receivable Turnover
Plant Assets to Long Term Liabilities
This ratio suggests how well long-term debt is managed to finance long-term assets Net Plant Assets/Long Term Liabilities
Average Cost per Unit
Total Cost/Number of Units
A partnership is owned by
two or more people
Current Ratio
measures a company's short-term debt paying ability by dividing current assets by current liabilities.
Vertical Analysis
uses percentages to compare individual components of financial statements to a key statement figure.
Outstanding Shares
are issued shares that are owned by stockholders
This ratio measures a company's ability to meet obligations without having to liquidate inventory. Quick Assets/Current Liabilities
Acid Test
Operating Leverage
A measure of the extent to which fixed costs are being used in an organization. Contribution Margin/NetIncome
Treasury Shares
are issued shares that have been reacquired by the corporation.
Activity Based Management
Assessment of the Value Chain to create or refine value-added activities and eliminate or reduce non-value-added activities.
Common Stockholders have the rights to
Buy and sell stock. Share in the distribution of profits. Share in the distribution of assets in the case of liquidation. Vote on significant matters that affect the corporate charter. Participate in the election of directors.
Indirect Costs
Deprecation, Supervisors Salary, Utilities
Why would a company buy its own stock
Employee stock option plans. Preparation for a merger. To increase earnings per share. Supporting the stock price. To avoid a hostile takeover.
Comprehensive Value Chain Analysis
Extends value chain analysis to all suppliers of a company, as well as servicers of the company's products.
Direct Labor
Factory wages that can be easily traced to products
Just in time
Many businesses have been able to simultaneously reduce their inventory holding costs and increase customer satisfaction by making products available just-in-time (JIT) for customer consumption.
Date of Record
No entry required.
Downstream Costs
Occur after the manufacturing process begins. Example: Advertising
Upstream Costs
Occur before the manufacturing process begins. Example: Research & Development
Direct Materials
Raw material costs that can be easily traced to products.
Declaration Date
Record liability for dividend
Payment Date
Record payment of cash to stockholders
Authorized Stock
The maximum number of shares of capital stock that can be sold to the public
Times Interest Earned
This is the most common measure of a company's ability to provide protection for its long-term creditors. Earnings Before Interest Expense and Income Taxes/Intrest Expense
Return On Investment
This is the ratio of wealth generated (net income) to the amount invested (average total assets). Net Income/Average Total Assets
Net Margin
This measure describes the percent remaining of each sales dollar after subtracting other expenses as well as cost of goods sold. Net Income/Net Sales
Earnings Per Share
This measure indicates how much income was earned for each share of common stock outstanding Net Earnings Available for Common Stock/Average Number of Outstanding Common Shares
The excess of current assets over current liabilities is known as
Working Capital
Total Quality Management
Zero defects and Customer Satisfaction through Continuous Improvement
SEC Act of 1934
a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America
Issued Shares
are authorized shares of stock that have been sold.
Unissued Shares
are authorized shares of stock that never have been sold.
Mixed costs ( or semivariable costs) include
both fixed and variable components
Most preferred stock is
cumulative
Common Size
financial statement is a vertical analysis in which each financial statement item is expressed as a percentage.
Ratio Analysis
involves studying various relationships between different items reported in a set of financial statements.
Legal Capital
is the amount of capital, required by the state of incorporation, that must remain invested in the business
Market Price
is the amount that each share of stock will sell for in the market.
Treasury Stock
issued shares that have been reacquired by the corporation.
Stock Splits
replace existing shares with a greater number of new shares. Companies use stock splits to reduce market price per share of their outstanding stock. The number of outstanding shares increase and par value is decreased proportionately. Retained earnings is not affected.
A sole proprietorship is owned by a
single individual
A corporation is a separate legal entity created by
the authority of a state government
SEC Act of 1933
to ensure that buyers of securities receive complete and accurate information before they invest in securities
Sarbanes-Oxley Act 2002
to protect investors from the possibility of fraudulent accounting activities by corporations. The SOX Act mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.