Accounting Final

A=L+SE

cash flow from operations, investing, financing
shows change in cash during the reporting period

revenues, gross profit, operating income, net income

shows change in common stock and retained earnings during the reporting period
Common stock changes: sales/buyback of common stock
RE: net income, dividends, etc...

total amount from sales, inflow of assets from an enterprise's principal business activity

revenues-cost of goods sold

can be derived two ways:
1. deduct total operating expenses from gross profit
2. take net income before deducting such items as interest expense and income taxes

expenses incurred in carrying out the operations of a business, for example: selling expenses, wages, depreciation, amortization

cash changes from day-to-day core business operations
inventory, interest, wages, administrative, taxes NOT DIVIDENDS!!!! they are treated differently from interest

information about purchase and sale of long-term assets by the firm

information regarding how a business was financed and how they raised cahs from issuign debt or equity or repaying debt or buying back shares. Dividend expense is a financing cahs outflow whereas interest is operations. repayment of loan is financing, sale of common stock is also financing

net income / sales revenue
also called the profit margin ratio, and indicates that for every dollar of sales revenue, the co is expected to generate X cents of bottom line profit

Total inflow of cash from selling the Co's product. It appears on the income statement as the initial entry before cost of goods sold is deducted to make gross profit, and also in the balance sheet as an increase in Retained earnings balanced by an increase in cash and/or accounts receivable

found as the last entry in the income statement after cost of goods sold, operating expenses, interest, and taxes have been deducted from total revenues

[net income + interest expense *(1-tax rate)] / total assets
The result indicates how many cents of net income are created with $1 of assets.

net income / shareholders' equity
how many cents of profit a firm will generate for every dollar of investment by shareholders

breaking ROE down to ROS, asset turnover, and financial leverage. Reveals that you can improve a firm's ROE (profitability) by improving any one of those factors.

Sales revenue / Total assets
a measure of how effectively a business's assets are bing used by the management team to generate sales revenue
different from ROA because it's using sales revenue rather than net income factors

total assets / shareholders' equity

refers to the relative mix of debt versus equity financing used by a business. a firm that is financied entierly by equity will have a FL ratio of 1 and will increase in value as debt financing is added. If ROE exceeds ROA it means that the firm has been abel to successfully use financial leverage because its return on assets is greater than its after-tax cost of borrowing and that excess return accrues to the firm's shareholders

ROE= ROS * asset turnover * financial leverage

net income / shareholders' equity = net income / sales revenue * sales revenue / total assets * total assets / shareholders' equity

long term debt / shareholders' equity

reveals the relative investment of long-term lenders versus that of the shareholders in the co, a high ratio indicates a financing strategy dependent on borrowed versus shareholder-invested funds.

operating income / interest expense

Interest coverage ratio reveals the extent to which current operating earnings cover current debt service charges
a high ratio means the company has strong oeperating earnings or low interest charges, and can take on additional debt and additional debt service costs

1. calculate the change in all balance sheet acounts by subtracting the beginning from ending balance
2. classify each balance sheet acount into operating, investing or financing
3. insert the relevant items into their station on the preliminary statement of cash flows
4. integrate income statement data by replacing the change in retained earnings with net income and dividends and add back to net income the noncash expenses of depreciation and amortization
5. remove any nonrecurring and or nonoperating financial effects from net income.

gains or losses outside a firm's normal operations
litigation settlements, impairment charges for long-lived assets, and gains or losses associated with the sale of property.

gains and losses that are both unusual and invrequent

net income divided by the actual number of common shares outstanding

net income divided byt he number of shares outstanding but adjusted for the possibility that some existing claims against the business might be converted into additional shares of common stock. thus increasing the number of shares outstanding. (employee stock options, convertible bonds, convertible preferred shares)

An ROE greater than ROA indicates that a firm is earning more on its borrowed unds than its cost to borrow those funds. This means that it’s effectively utilizing its financial leverage

ROE * dividend retention rate

estimates a firm's maximum desired rate of growth. excessively rapid growth can strain the financial resources of a business. Using the Dupont method we can restate this as

SGR = ROS * AT * LEV * DRR

thus a firm can increase its SGR by increasing any of those key components.

1-(dividend paid/net income)

percentage of net income not paid to shareholders in the form of dividends and consequently retained in a business.

goes under assets to subtract from accounts receivable

operating expense for the period = 1/n (acquisition cost - residual value)
n=expected useful life ie length of time that the asset is expected to be productive for the company

operating expense for the period = 2/n (book value)
where book value the first year is just the price of the asset and you subtract the depreciation expense from that year to the book value of the preceeding year to establish the end of period book value

operating expense for the period = output consumed this period / total estimated lifetime output (acquisition cost - residual value)

: marketable debt and equity securities that may be sold at any time to take advantage of price changes. These investments are valued at their market value on the balance sheet with any unrealized gain or loss in a security’s value included directly in the investors’ net income
Unrealized gain/loss in a security’s value: an increase/decrease in the value of an asset that has not yet been sold. When the asset is sold, the gain/loss is said to be realized

investments in debt and equity securities that management intends to hold for the long term but which, under the right circumstances management might liquidate
These investments are also valued on the balance sheet at their market value but for these investments, any unrealized gain or loss is reported in a separate shareholders’ equity account on the balance sheet.

debt securities that management intends to hold until maturity
These are valued at their amortized cost, the original purchase price of the debt plus or minus the amortization of any purchase discount or premium.

used when you have between 20 and 50 perent of outstanding voting shares and can exercise significant influence over an investee's operating policies. under this method the investment in equity affiliate is valued at cost plus share of earnings less share of dividends on balance sheet and proportionate share of affiliate's earnings nincluded in the income of investor company

when you have greater than 50% or controlling interest in another company. on parent company books, investmetn is accounted for uing the equity method, upon consolidation: assets and liabilities of the subsidiary are added to those of the paretn with investment in equity affiliate eliminated and noncontrolling interest shown on balance sheet. transactions between parent and sub are netted out, and revenue and expenses of sub are combined with those of parent company with noncontrolling intrests in subsidiary's inome deducted from consolidated earnings.

1. Legal title passes from lessor to lessee by the end of the lease
2. There’s a bargain purchase option
a. if you can get a fix on the fair value of the asset and purchase it
3. The lease term is equal to 75% or more of the economic life of the asset being leased
4. If present value of the lease payments = 90% or more of the fair value of the asset at the inception of the lease

an asset purchase agreement involving a deferred payment plan; and as such the operating asset acquired under a capital lease and the related obligation to make lease payments are capitalized to the lessee’s balance sheet

contractual relationship where lessor grants temporary use of an asset to lessee, primary difference is that this one is cancellable