Term
| investments in debt (only about market value if we intend to sell it) |
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Definition
1.trading securities
2.available for sale securities
3.held to maturity securities
->>take into account UHG unrealized holding gain |
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Definition
(fair value)
buy in order to sell immediately-no longer than 30 days
-considered a current asset |
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| available for sale securities |
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Definition
(fair value)
do not intend to keep it until it matures (Sell it at best time)
-not shown in income statement, goes directly to RE
-no journal entry to show gain/loss |
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Term
| held to maturity securities |
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Definition
(carrying value)
keep until the end
-show only interest revenue on IS, mirror image of borrower |
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Definition
buy < 20% = TS and/or AFS
the equity method:buy |
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Term
| pension funds(Separate legal entity doesn't belong to anyone) |
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Definition
defined benefit:%n(salary)n, fixed amount
-receive % of salary when you retire
-employer has to worry about market conditions, retirement dates, etc in the future
defined contribution:fixed amount goes in but it may fluctuate |
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Term
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Definition
PBO: projected benefit obligation
-PV of what we think will be paid in the future
PBO= PB/(1+i)^t
BS does not refelct assets and liabilities-all you see is your net liabilities |
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Term
| Straightline depreciation |
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Definition
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Term
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Definition
used for tax purposes
-initially we pay less but eventually pay it all |
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Term
| interest tax expense v. interest tax payable |
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Definition
| what we believe we have to pay v. how much we actually have to pay |
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Term
| deferred tax liability and deferred tax asset |
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Definition
happen when there is a TEMPORARY difference b/w financial accounting and tax accounting
-does not take into account the time value of money |
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Term
| when deciding who to lend money to, always compare the... |
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Definition
| present values b/c they are valued at future value on financial statements |
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Term
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Definition
depends on the outcome of another event, we dont know what will happen
ex: pending lawsuit |
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Term
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Definition
-safer than common stock
-no voting rights (like cs) |
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Term
| types of preferred stock (equity) |
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Definition
1. regular
2. cummulative
3. participated
4. cummulative & participated |
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Term
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Definition
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Term
| cummulative preferred stock |
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Definition
| account for previous years dividend is not paid |
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Term
| participated preferred stock |
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Definition
-use whichever percent is higher
-resembles CS b/c when CS holders get more, participated gets more |
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Term
| Cummulative and participated preferred stock |
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Definition
-more expensive
-give them the regular price for each period until the last in which you give them the participated price |
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Term
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Definition
| div per share/earnings per share |
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Term
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Definition
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Term
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Definition
size of each share is cut in half and # of each share is doubled
-shares become more liquid
-informational content behind it, believe share price will go up in future (hidden message), opposite for reverse |
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Term
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Definition
| growing, normal, declining |
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Term
| why would a co. buy back its own shares? |
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Definition
-to be less vulnerable to a hostile takeover
-treasury stock(equity, can never show profit, financing activity, debited) |
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Definition
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Term
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Definition
sell a promise to sell shares at a predetermined price
-if $1 per share call option, she can never lose more than what she paid, but there is no limit on gain
-price inc, net return inc
-typically only offered for a few months b/c it is risky |
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Term
| what is the most effective way to motivate managers? |
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Definition
to give them options for 5 years; warrants with the stipulation that every year they work they can use 20%
*they care about the present and the future |
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Term
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Definition
you tell someone that you will sell them shares at a later date but you dont have them yet
-think price will dec, borrow from shareholder
-sell for believed high price
-if she thinks price will dec, buy them back |
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Term
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Definition
promise to pay a certain predetermined price, opposite of call option
-good if you think price will go down |
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Term
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Definition
| if you buy both put and call (expect price to go up or down), you only lose one |
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Term
| most investors only look at EPS |
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Definition
earnings per share ratioe= NI-div/# shares
#shares= weighted avg for the year
divs are divs of preferred SHs |
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Term
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GM/sales
-shows changes in impact of the price
-small increase can lead to a large increase in NI |
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Term
| if ROE is > ROA then we... |
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Definition
| use a loan efficiently, generate a higher rate of return |
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Term
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Definition
total liabilities/SE
-a high ratio suggests that a company relies heavily on creditors and may not be able to meet financial obligations during a downturn
-associated with how much cash the company can generate from operations |
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Term
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Definition
current assets/current liabilities
-ratio should be between 1 and 2 to suggest good liquidity and efficient
use of resources
-too high shows inefficiency
-typically want to be at least 2 to be sure current liabilities will be met, we are not sure we will sell all of our inv or collect all A/R |
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Definition
| compare ratio w/ industry norms |
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Definition
| compare ratio w/ past years |
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Term
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Definition
| we want to have as little inventory as possible given that we sell as much as possible (same principle with A/R) |
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Term
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Definition
cogs/inv
-inv/(cogs/365)= sales period, how much we sell per day |
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Definition
sales/total assets
-want to have as many possible sales and as little as possible assets
-shows efficient use of assets |
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