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Generally Accepted Accounting Retained Earnings – cumulative total of

Principles – practice and procedure to all earnings, net of dividends that have
maintain financial records; authorized been retained and reinvested
by FASB
Statement of Stockholders’ Equity –
Financial Accounting Standards Board – shows equity account transactions that
accounting profession’s rule-setting occurred during a given year
body
Statement of Retained Earnings –
Public Company Accounting Oversight reconciled NI earned during the year
Board – established by SOX to protect and any paid dividends
interest of investors and for informative,
Statement of Cash Flows – provides
fair, and independent audit reports
summary of firms’ operating, investing,
Stockholders’ Report – annual report and financing activities and reconciles
that summarizes and documents with changes in its cash and marketable
financial activities during the past year sec

Letter to Stockholders – first element of Notes to the Financial Statement –


annual report and primary provide detailed info on the acctg
communication from mgt policies, procedures, etc

Income Statement – financial summary Ratio Analysis – methods of calculating


of the firm’s operating result during and interpreting financial ratio to
specified period (as of) analyze the firm’s performance

Dividends per share – amount of cash Cross Sectional Analysis – comparison of


distributed during the period on behalf diff firms’ FR at the same point of time
of each outstanding common stock (industry average)

Balance Sheet – summary of financial Benchmarking – type of CSA in which


position in given point in time ratio values are compared to key
competitors
Current Asset – short term assets and
expected to be encashed within 1 year Time-series Analysis – evaluation of firm’s
or less FP over time using FRA

Current Liabilities – short term liabilities Liquidity – ability of firm to satisfy short
and expected to be paid within 1 year term obligations as they due
or less
*FOR FORMULAS: SEE BOOK*
Long-term Debt – debt for which
LIQUIDITY RATIOS
payment is not due in the current year
* Current Ratio – higher CR indicates
Paid-in Capital in excess of par –
higher degree of liquidity
amount of proceeds in excess of the
par value received from the original sale * Liquidity Ratio – indicates the % of
of common stock annual debt that an individual can
meet using current liquid assets
*Quick (Acid test) Ratio – provides *Debt Ratio – measures the proportion
better measure of liquidity only if of total assets financed by the creditors
inventories cannot be easily converted
*Times Interest Earned Ratio – measures
into cash
firm’s ability to make contractual
ACTIVITY RATIOS – measure the speed interest payments; interest coverage
w/ w/c various accounts are converted ratio
into sales or cash inflow or outflow
*Fixed Payment Coverage Ratio –
*Inventory Turnover – measures the measures firm’s ability to meet all fixed
activity, or liquidity of inventory payment obligations

*Average Age of Inventory – ave PROFITABILITY RATIOS – enable analysts


number of days’ sales in inventory to evaluate the firm’s profits w/ respect
to sales, assets, and investments
*Average Collection Period – ave
amount of time needed to collect AR Common Size IS – IS where each item is
expressed as percentage of sales
*Average Payment Period – ave
amount of time needed to pay AP *Gross Profit Margin – measures the % of
each sales dollar remaining after
*Total Asset Turnover – indicates the
deducting COS
efficiency w/ w/c firm uses its assets to
generate sales *Operating Profit Margin - measures the
% of each sales dollar remaining after
*DEBT RATIOS – measure proportion of
costs and expenses except interest,
total asses financed by creditors; the
taxes, and PSD are deducted; pure
higher ratio – greater debt position
profits
Debt Position – amount of other
*Net Profit Margin - measures the % of
people’s money being used to
each sales dollar remaining after all of
generate profit
the expenses are deducted
Financial Leverage – magnification of
*Earnings per Share
risk and return through the use of fixed
cost financing – debt and preferred *Return on Total Assets – measures
stock; the more debt – greater FL overall effectiveness of mgt in
generating profits with available assets;
Degree of Indebtedness – measures
ROI
amount of debt relative to other
significant balance sheet amounts *Return on Common Equity – measures
return earned on the common
Ability to Service Debts – make
stockholders’ investment
payments required on a scheduled
basis over the life of the debt MARKET RATIOS – relate a firm’s MV as
measured by its current share price
Coverage Ratios – measure the firm’s
ability to pay certain fixed charges *Price/Earnings Ratio – measures the
amount investors are willing to pay for
each dollar of firm’s earnings; higher Financing Flows – debt and equity
ratio – greater investor confidence financing transactions

*Market/Book Ratio – provides Noncash Charge – expense that is


assessment of investors’ views in the deducted in IS but does not involve
firm’s performance; expect high returns cash outlay
relative to risk to sell at higher MB
Operating Cash Flow – cash flow a firm
DuPont System of Analysis – used to generates from normal operations
dissect FS and assess its financial
NOPAT – earnings before interest and
conditions
after taxes
DuPont Formula – ROA
Free Cash Flow – cash flow available to
Modified DuPont Formula – ROE using investors, creditors after firm met all
FLM operating needs and paid for
investments in fixed and current assets
Financial Leverage Multiplier – ratio of
firm’s total asset to its common stock Financial Planning Process – begins with
equity long term (strategic) that guide the
formulation of short term (operating)
Depreciation – portion of the costs of
plans and budget
fixed assets charged against annual
revenues over time Long term (strategic) FP – co.’s planned
financial actions and impact of actions
Modified Accelerated Cost Recovery
over 2-10 years
System – determines the depn of assets
for tax purposes; DDB using half year Short term (operating) FP – short term
convention plans and impact of actions

Half Year Convention – half year of the Cash Budget (Forecast) – statement of
1st year’s depn recovered in the 1st year, planned cash flows used to estimate its
and the other half of depn is recovered short term cash requirement
in the year immediately following the
Sales Forecast – prediction of sales over
assets’ stated recovery period
given period; key input to short term FP
Depreciable Life – time period over w/c
External Forecast – SF based on
an asset is depreciated
relationships observed b/w sales and
Recovery Period – appropriate certain key external economic cond
depreciable life of particular asset as
Internal Forecast – SF based on buildup,
MACRS
consensus of SF through firm’s sales
Operating Flows – sale and production channels
of products and services
Cash Receipts – inflows of cash during
Investment Flows – purchase and sale of given period
fixed assets and equity investments in
Cash Disbursement – cash outlays
other firms
during given period
Net Cash Flows – difference b/w
receipts and disbursements

Ending Cash – sum of beg cash and net


cash flow

Required Total Financing – funds


needed by the firm if ending cash is less
than minimum cash balance; notes
payable

Excess Cash Balance – amount


available for investment if ending cash is
greater than minimum cash balance;
marketable securities

Pro forma Statements – projected or


forecasted, IS and BS

Percent of Sales Method – method


developing proforma IS; forecasts sales
and expresses IS items as percentages
of projected sales

Judgmental Approach – approach for


preparing proforma BS which firm
estimates values of BS accounts and
uses its external financing as balancing
“plug” figure

External Financing (plug) Figure –


amount of external financing needed to
bring the statement into balance;
positive or negative value