Term
|
Definition
| cover two years for the same company |
|
|
Term
| Industry-average comparisons |
|
Definition
| based on average ratios for particular industries |
|
|
Term
|
Definition
| based on comparisons with a competitor in the same industry |
|
|
Term
|
Definition
| (Net income-Preferred Stock Dividends) / Average number of common shares outstanding during the year. |
|
|
Term
|
Definition
Current Assets - Current Liabilities
Difference between the amounts of current assets and current liabilities |
|
|
Term
|
Definition
Current assets / Current Liabilities
A Liquidity ratio measuring the short-term ability to pay obligations or unexpected needs for cash.
Downfall is it doesn't take into account the COMPOSITION of current assets
(Could be lots of slow inverntory and little cash)
Higher ratio suggests favorable liquidity |
|
|
Term
| Debt to Total Assets Ratio |
|
Definition
Total Liabilities / Total Assets
Shows how much of every dollar of assets was financed by creditors (not stockholders)
Lower ratio suggests favorable solvency |
|
|
Term
|
Definition
Cash Provided by Operations - Capital Expenditures - Cash Dividends
Describes cash remaining from operating activities after adjusting for capital expenditures and dividends paid. |
|
|
Term
| Fundamental qualities of financial reporting |
|
Definition
Relevance- Info that has predictive value or confirmatory value
Faithful Representation- Info is complete and neutral |
|
|
Term
| Enhancing qualities of financial reporting |
|
Definition
Comparability
Consistency
Verifiability
Timeliness
Understandability |
|
|
Term
| Assumptions in Financial Reporting |
|
Definition
Monetary unit assumption- Only what can be expressed in money included
Economic Entity Assumption- Company transactions not blurred with personal transactions
Periodicity Assumption- life of business can be divided into artificial time periods
Going Concern Assumption- business will remain in operation for the forseeable future
Accrual Basis- transactions are recorded in the periods in which they occur |
|
|
Term
|
Definition
Companies record assets at their cost.
(Like recording land purchased as $40,000 even if now it's worth $60,000 |
|
|
Term
|
Definition
Assets and liabilities should be reported at fair value (price recieved to sall an asset or settle a liability)
Used in situations where assets are actively traded, such as investment securities. |
|
|
Term
| Full Disclosure Principle |
|
Definition
requires that companies disclose all circumstances and events that would make a difference to financial statement users.
(In the notes section) |
|
|
Term
| Constraints in Financial Reporting |
|
Definition
Materiality Constraint- An item in MATERIAL when its SIZE makes it likely to influence decision of inverstor/creditor
INMATERIAL if it is too small to impact a dicision
Cost Constraint- Providing financial info is costly |
|
|
