Term
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Definition
Assets, Liabilities and Equity
-Assets and Liabilities should only be recognized on financial statements if it is PROBABLE that the future economic benefits associated w them will flow to, or from the firm, and that the item's cost or value can be measured with RELIABILITY
-A and L arise from business transactions or a result of accrual acctng |
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Term
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Definition
-discloses what an entity owns and owes at a specific point in time
-referred as the statement of financial position
-financial position of an entity is described in terms of assets, liabilities and equity |
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Term
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Definition
| -resources under a co. control as a result of past transactions that are expected to generate future economic benefits for the company |
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Term
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Definition
| cash and cash equivalents; inventories; trade and other receivables; prepaid expenses; financial assets; PPE; investment property; intangible assets; assets held for sale |
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Term
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Definition
| -company's obligations from previous transactions that are expected to result in outflows of economic benefits in the future |
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Term
| Typical Liabilities on BS |
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Definition
| Bank borrowings/Notes Payable; Trade and other payables; provisions; unearned revenues; financial liabilities; accrued liabilities; deferred tax liabilities |
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Term
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Definition
-the residual claim of shareholders on a company's assets after deducting all liabilities
-stock holders equity, net assets, owners' equity
-created as a result of operating activities and financing activities |
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Term
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Definition
| provides useful information regarding a company's financial position to both investors and lenders |
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Term
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Definition
cannot view equity reported on BS as either the market or intrinsic value of a company's net assets (equity) bc:
1) measurement bases of different assets and liabilities may vary considerably. differences can have significant impact on reported figures
2) value of items reported on BS reflects their value at the end of the reporting period, which may not necessarily current at a later date
-BS does nOT include qualitative factors (reputation etc) that have an important impact on the company's future cash-generating ability and therefore, its overall value |
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Term
| Alternative Formats of BS presentation |
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Definition
Report Format
Account Format
Classified BS
Liquidity based Presentation |
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Term
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Definition
A, L, and E are presented in a single column
-most commonly used |
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Term
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Definition
| -follows traditional general ledger accounts w assets at left and liabilities and equities at right of a central dividing line |
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Term
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Definition
| -different types of assets and liabilities are grouped into subcategories to give more effective overview of co. financial position (e.g. current assets) |
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Term
| Liquidity Based Presentation |
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Definition
-allowed under IFRS if format provides more reliable and relevant information
-all A and L are broadly presented in order of liquidity
--> liquidity refers to how quickly the asset can be converted to cash at a price close to its fair market value
-typically used by banks |
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Term
| Current Assets/Liabilities vs Non-Current Assets/Liabilities |
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Definition
-both IFRS and US GAAP require that A and L be grouped separately into current and concurrent portions
-makes it easier for analysts to examine the company's liquidity position as of BS date |
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Term
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Definition
-liquid assets that can be converted into cash or used up in 1 year or 1 operating cycle
--> operating cycle: avg time taken by co. to convert the funds used to purchase inventory or raw materials into cash proceeds from sales to customers |
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Term
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Definition
-obligations which will be settled in 1 years or 1 operating cycle
may be classified as CL if:
-expected to be settled in the entity's normal operating cycle
-primarily held for the purpose of trading
-due to be settled w/in one year after the BS date
-entity does not have an unconditional right to defer settlement of the liability for at least one year after the BS date |
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Term
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Definition
Working Capital = Current Assets - Current Liabilities
-high WC means not utilizing resources efficiently
-low WC means liquidity problems |
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Term
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Definition
-not converted into cash or used up within one year or operating cycle
-aka long live assets
-represent the infrastructure that the firm uses in its operations and other investments made from a strategic or LT perspective |
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Term
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Definition
-obligations which are not settled in one year or one operating cycle
-source of lLT finance for a company |
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Term
| Types of Assets and Liabilities |
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Definition
Current Assets
-cash and cash equivalents; marketable securities; Trade receivables; inventories; Other Current Assets
Current Liabilities
-trade payables; notes payable; current portion of long term liabilities; income taxes payable; accrued liabilities; unearned revenue
Non-Current Assets
-PPE; Investment Property; intangible assets; identifiable intangible assets; goodwill; financial assets; marketable investment securities;
Non-Current Liabilities
-LT Financial Liabilities; Deferred tax Liabilities |
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Term
| Cash and Cash Equivalents |
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Definition
-cash equivalents: highly liquid securities that mature in less than 90 days
--> may be measured at amortized cost or fair value |
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Term
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Definition
| historical cost adjusted for amortization and impairment |
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Term
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Definition
IFRS
-amount at which the asset can exchanged in an arm's length transaction between willing and informed parties
US GAAP
-based on exit price - the price received to sell an asset |
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Term
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Definition
0financial assets and include investments in debt and equity securities that are traded on public markets
-B/S values are based on market price |
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Term
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Definition
-amounts owed to the co. by customers to whom sales have been made
-reported at net realizable value |
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Term
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Definition
-estimate of fair value based on the company's expectations regarding collectability
-provision for doubtful accounts is contra asset account (netted against A/R)
-increase in allowance for doubtful accounts result in a lower value reported under trade receivables (assets) and bad debts (expenses) being reported on the income statement |
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Term
| net realizable value (trade receivables) |
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Definition
-estimate of fair value based on the company's expectations regarding collectability
-provision for doubtful accounts is contra asset account (netted against A/R)
-increase in allowance for doubtful accounts result in a lower value reported under trade receivables (assets) and bad debts (expenses) being reported on the income statement |
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Term
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Definition
-physical stocks held by the co. in the form of in fished goods, work-in progress or raw materials
IFRS
-reported at the lower of cost and net realizable value
US GAAP
reported at the lower of cost and market
***once inventory is sold, its cost is reported as an expense in the IS under COGS |
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Term
| net realizable value (inventory) |
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Definition
| = selling price - selling costs |
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Term
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Definition
| -current replacement cost of inventory |
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Term
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Definition
-include direct materials, direct labor and over heads
following amounts should not be included in calculation:
-ABNORMAL amounts of wasted materials, labor and overheads
-storage costs incurred AFTER the production process is complete
-ADMINISTRATIVE overheads |
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Term
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Definition
-items that are not material enough to be reported as a separate line item on BS
may include:
prepaid expenses
deferred tax assets |
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Term
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Definition
-normal operating expenses that have been paid in advance
-recognized as assets on BS
-over time, they are expensed on IS and the value of the asset is reduced |
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Term
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Definition
-arise when a company's taxes payable exceed its income tax expense
-represent a prepayment of taxes and count as assets |
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Term
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Definition
-amounts owed by the business to its suppliers for purchases on credit
-can gain insight into co. relationship w suppliers by examining the trend in the levels of trade payables relative to purhcases |
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Term
| Notes Payable (current borrowings) |
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Definition
-borrowings from creditors that are documented by a loan agreement
-depending on agreed repayment date, may also be included in concurrent liabilities |
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Term
| Current Potion of LT Liabilities |
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Definition
| -portions of LT debt obligations that are expected to be paid within a year of the BS date or within one operating cycle (whichever is greater) |
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Term
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Definition
| -taxes that have not actually been paid yet |
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Term
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Definition
| -expenses that have been recognized on the IS but have still not been paid for as of the BS date |
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Term
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Definition
| a company receives cash in advance for goods and services that are still to be delivered |
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Term
| Property, plant, and equipment |
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Definition
LT assets that have physical substance
-land, plant, machinery, equipment and any natural resources owned by the co.
-reported at historical cost (original cost + all cost necessary to get the asset ready for use) less accumulated depreciation |
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Term
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Definition
-property that is owned for rental income and/or capital appreciation
-may be valued using the cost model or the fair value model
-may only use fair value if it is able to determine the fair value for the investment property on a continuing basis w reliability |
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Term
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Definition
| -identifiable non-monetary assets that lack physical substance |
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Term
| identifiable intangible assets |
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Definition
-acquired single and rights or privilege having finite benefit period
following costs are expensed:
-start up and training costs
-administrative and overhead costs
-advertising and promotion costs
-relocation and reorganization costs |
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Term
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Definition
the excess of the amount paid to acquire a business over the fair value of its net assets due to:
-certain items of value are not recognized in a co.'s FS (e.g. reputation)
-target co. may have incurred R&D expenditures that are not recognized on FS but do hold value for the acquirer
-acquisition may improve acquirers position against a competitor
-accounting and economic good will |
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Term
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Definition
-based on accounting standards and is only reported for acquisition when the purchase price exceeds the fair value of the acquired company's net assets
-accounting good will resulting from acquisition is capitalized and tested for impairment annually; impairment reduces nI
-when performing ration analysis, IS values should be adjusted by removing impairment expense and BS values should be adjusted by excluding goodwill |
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Term
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Definition
not reflected on the BS, is based on a company's performance and its future prospects
-will be reflected in co.'s stock price |
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Term
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Definition
-financial instrument: contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity
-investments in securities, recievables and derivatives
-mark to market |
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Term
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Definition
process of adjusting the values of trading assets and liabilities to reflect their current market values
-made on a daily basis
-held for trading and AFS are subject to this |
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Term
| Available for Sale securities |
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Definition
-debt or equity securities that are neither expected to be traded in the near term nor held till maturity
-reported at fair market value
-dividend income, interest income, and realized gains and losses on AFS securities are reported on IS, but unrealized gain/losses are reported in OCI as a part of shareholders' equity |
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Term
| Held to maturity securities |
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Definition
debt securities that are purchased with the intent of holding them till maturity
-carried at amortized cost
-unrealized gains or losses from changes in market value are ignored and not recognized on FS
-only interest income and realized gains and losses (gains when these securities are sold) are recognized on the income statement |
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Term
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Definition
| = face value - unamortized discount + unamortized premium |
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Term
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Definition
debt and equity securities (e.g. stock and bonds) that are acquired with the intent of earning trading profits over the near term
-measured at fair market value on BS
-dividend income, interest income, realized gains and losses and unrealized gains and losses are all reported on IS |
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Term
| Long term financial liabilities |
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Definition
| -measured at fair value or amortized cost |
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Term
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Definition
-company's income tax expense exceeds taxes payable
-company pays less taxes based on its tax return that it should pay according to its financial statements
-unpaid taxes will be paid in future periods
-have current and non current portions |
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Term
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Definition
-company's income tax expense exceeds taxes payable
-company pays less taxes based on its tax return that it should pay according to its financial statements
-unpaid taxes will be paid in future periods
-have current and non current portions |
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Term
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Definition
classified as either
held to maturity
trading securities
AFS securities |
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Term
| Components of shareholders equity |
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Definition
-contributed capital
-preferred shares
-treasury shares
-retained earnings
-accumulated other comprehensive income
-non controlling interest |
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Term
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Definition
-owners contribute capital to an entity by investing in common shares
required disclosures:
common shares par values
number of authorized, issued and outstanding shares |
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Term
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Definition
| receive dividends at a specified percentage of par value and have priority over ordinary shareholders in the vent of liquidation |
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Term
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Definition
shares that have been bought back by the co.
-do not receive dividends and do not have voting rights and can be reissued at a later date w no gain or loss recognized |
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Term
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Definition
| cumulative earnings of the firm one rate years that have not been distributed to shareholders as dividends |
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Term
| Accumulated other comprehensive income |
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Definition
| cumulative other comprehensive income |
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Term
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Definition
| minority shareholders' pro rata share of the net assets of a subsidiary that is not wholly-owned by the co. |
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Term
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Definition
| total number of shares that can be sold under firm's articles of incorporation |
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Term
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Definition
| number of shares that have actually been sold |
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Term
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Definition
| issued shares less number reacquired by firm |
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Term
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Definition
| stock that has been reacquired by the issuing firm but not yet retired. it reduces stockholders' equity |
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Term
| statement of Changes in Owners' Equity |
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Definition
-presents the effects of all transactions that increase or decrease company's equity over the period
following should be included:
-total comprehensive income for the period
-the effects of any accounting changes that have been retrospectively applied to previous periods
-capital transactions w owners and stiributions to owners
-reconciliation of the carrying amounts of each component of equity a the beginning and end of the year |
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Term
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Definition
-gain info regarding a company's liquidity, solvency and the economic resrouces controlled by the company
-common size and ratio analysis is used to analyze BS |
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Term
| Convert BS to common - size BS |
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Definition
-express each bS item as a percentage of total assets
-allows for historical analysis and cross sectional analysis across firms within the same industry |
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Term
| interpretation of common-size BS |
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Definition
-% of cash and short term marketable securities can give idea on how liquidate company is
- excess of CL over CA shows company's ability to meet ST liabilities
-presence of goodwill shows company has grown via acquisitions, absence of goodwill means company has pursued a strategy of internal growth
-% of assets that is financed with liabilities gives insight into solvency |
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Term
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Definition
measure a companies ability to settle ST obligations
-higher the liquidity ratio, the greater the likelihood that the company will be able to meet its ST obligations
-current ratio; quick ratio; cash ratio |
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Term
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Definition
| Current Assets/Current Liabilities |
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Term
| Quick Ratio (acid test ratio) |
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Definition
| Cash + marketable securities + recievables / current liabilities |
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Term
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Definition
| cash + marketable securities / current liabilities |
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Term
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Definition
higher ratios indicate that company is highly leveraged and risky
-long term debt to equity ratio; debt to equity ratio; total debt ratio; financial leverage ratio |
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Term
| Long Term debt-to-equity ratio |
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Definition
| Total long term debt / total equity |
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Term
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Definition
| Total Debt / Total Equity |
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Term
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Definition
| Total Debt / Total Assets |
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Term
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Definition
| Total Assets / total equity |
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