Accounting Chapter 14
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What are classified financial statements?
Characteristics that are placed together in a group or classification.
Example of a classified financial statement?
A balance sheet that separates asses & liabilities into current and noncurrent categories
Where do comparative financial statements appear?
the financial statements amounts for several time periods appear side by side in vertical columns
A corporation that owns other businesses.
the owned companies
Consolidated financial statements
Presents the financial position & operating results of the parent company & its subsidiaries as if they were a single busines organizaition.
How is the % change computed?
by dividing the amount of the dollar change between the years by the amount for the base year.
When can a % change not be computed?
if a negative amount or a zero amount appears in the base year.
When should sales & earnings increase at more than the rate of inflation?
If a company is experiencing growth in its economic activities
To express the idea of reviewing data for a # of consecutive periods.
The review of the financial information within a singfle accounting period.
The excess of current assets over current liabilitie4s
A widely used measure of short-term debt-paying ability.
The the current ratio, the more liquid the company appears to be
What does quick assets include?
Cash, marketable securities, & recievables.
What does quick raito comapares?
Only the mose liquid current assets?
A measure of creditors long term risk
The the debit ratio, the their position
Management's Discussion & Analysis
Where management identifies & discusses favorable & unfavorable trends & events that may affect the company in the future.
What happens by co-signing debits of the corporation?
The individual stockholders do become personally liable for the devit if the corporation fails to make payment
Income Statement is divided into four major sections:
- 1. revenue
- 2. cost of goods sold
- 3. operating expenses
- 4.nonoperating items
Gross Profit Rate
Gross profit expressed as a percentage of net sales
Shows the relationship betwen revenue earned from customers & expenses incurred in producing this revenue.
What does operating income measures?
The profitability of a companys basic or core business operations & leaves out other types of revenue & expenses.
What are revenue & expenses not directly related to?
The companys primary business activities are listed in a final section of the income statement follwing operating income.
What income taxes does not help produce?
What is the mose widely used of all accounting ratios?
Earnings Per Share
What are the major factors affecting the market value of a companys shares?
Trend in earnings per share & the expected earnings in the future periods.
How is the price earnings ratio computed?
This ratio is computed by dividing the current market price per share of the company's stock by annual earings per share.
When can't a P/e ratio be computed?
A period in which the company incurs a net loss
What 3 factors are bondholders & long term creditors intrested in?
- 1. the rate of return on their investment
- 2. the firm's ability to meet its interest requirements
- 3. the firms ability to repay the princpal of the debt when it falls due
The yield rate varies inversely with changes in the market price of the bond.
- Rates rises,the market price of existing bonds will fall.
- Rates decline, the price of bonds will rise.
Current Ratio- A measure of short term debt paying ability
- Current AssetsCurrent Liabilities
Quick Ratio- a measuer of short term debit paying ability
- Quick AssetsCurrent Liabilities
Debit Ratio- Percentage of assets financed by creditors
- Total Liabilities
- Total Assets
Earnings Per Share- Net income applicable to each share of common stock
- Net Income - Preferred dividendsAverage # of common shares outstanding
Return On Assets Return On Equitiy
- Operating Income Net Income
- Average Total Assets Average Total Equity
Price Earnings Ratio- A measure of investors expectations & current market conditions
- Current Stock Price
- Earnings Per Share
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