ACC exam prep
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If a liability meets the definition but not the criteria what should it be treated as?
What is DuPonts formula?
Return on assets= net profit margin x Asset turnover (sales turnover)
How to calculate intrinsic value for shares
Share dividend divided by (rates return x rate)
Define and provide examples for business and financial risks
- Business risk: risk associated with the unique circumstances of a particular company
- Eg. a mining company (BHP) impacted by the change in the market price for ore
- Financial Risk: risk associated with company's use of debt financing
- Eg. the higher level of debt in a company means higher interest payments and the possibility of less cash being available for distribution to share holders
Distinguish between the two main types of investors
- Individual investors: invest on their own behalf
- Institutional investors: invest on the behalf of others
- They usually trade in much larger amounts than individual investors and have a wider range of securities available to invest in
- Generally accepted that on average, institutional investors are more skilled and as a result, they profit at the expense of individual investors
What are the 2 main types of securities?
- Financial security: a financial instrument that is traded in the secondary financial market (investors to other investors)
- Debt securities: no ownership rights. Traded both in the money market (Less than 1year maturity eg. bills or notes) and capital market (more than 1 year maturity eg. debentures). Definite maturity date
- Equity securities: confer ownership rights and are assumed to have an indefinite maturity date. Traded in capital market only
- eg. ordinary or preference share
What is 'relevant range'?
A specific activity level bounded by a maximum and a minimum amount. Within these boundaries, certain revenue or cost levels can be expected to occur
What is corporate governance?
- The system of rules, practices and processes by which a company is directed or controlled. This can be applied to any business.
- Involves: remunerating fairly, promote ethical and responsible decision making, recognise and manage risk, safeguard integrity in financial reporting and make timely and balanced disclosure
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