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Chapter 2 - More Financial Statements


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Cash Debt Coverage Ratio:
A measure of solvency that is calculated as cash provided by operating activities divided by average total liabilities
Classified Balance Sheet:
A balance sheet that contains a number of standard classifications or sections.
Ability to compare the accounting information of different companies because they use the same accounting principles.
The approach of choosing an accounting method, when in doubt, that will least likely overstate assets and net income.
Use of the same accounting principles and methods from year to year within a company.
Current Assets:
Cash and other resources that are reasonably expected to be converted to cash or used up by the business within on year of the operating cycle, whichever is longer.
Current Cash Debt Coverage Ratio:
A measure of liquidity that is calculated as cash provided by operating activities divided by average current liabilities.
Current Obligations:
Obligations reasonably expected to be paid within the next year or operating cycle, whichever is longer.
Current Ratio:
A measure used to evaluate a company's liquidity and short-term debt-paying ability, computed by dividing current assets by current liabilities.
Debt to Total Assets Ratio:
Measures the percentage of total financing provided by creditors; computed by dividing total debt by total assets.
Earnings Per Share (EPS):
A measure of the net income earned on each share of common stock; computed by dividing net income minus preferred stock dividends by the average number of common shares outstanding during the year.
Financial Accounting Standards Board (FASB):
A private organization that established generally accepted accounting principles.
Generally Accepted Accounting Principles (GAAP):
A set of rules and practices, having substantial authoritative support, that are recognized as a general guide for financial reporting purposes.
Intangible Assets:
Assets that do not have physical substance.
The ability of a company to pay obligations that are expected to become due within the next year of operating cycle.
Liquidity Ratios:
Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
Long-Term Investments:
Generally, investments in stocks and bonds of other companies that are normally held for many years. Also includes long-term assets, i.e. land & buildings, not currently being used in the company's operations.
Long Term Liabilities/Debts:
Obligations not expected to be paid within one year or the operating cycle.
The constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor.
Operating Cycle:
The average time required to go from cash to cash in producing revenues.
A measure of the ratio of the market price of each share of common stock to the earnings per share; it reflects the stock market's belief about a company's future earnings potential.
Profitability Ratios:
Measures of the income or operating success of a company for a given period of time.
Property, Plant and Equipment:
Assets of a relatively permanent nature that are being used in the business and are not intended for resale.
An expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, rate, or a proportion.
Ratio Analysis:
A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
The quality of information that indicates the information makes a difference in a decision.
The quality of information that gives assistance that it is free of error and bias.
Securities and Exchange Commission (SEC):
The agency of the US government that oversees US financial markets and accounting standards-setting bodies.
The ability of a company to pay interest as it comes due and to repay the face value of debt at maturity.
Solvency Ratios:
Measures of the ability of the company to survive over a long period of time.
Statement of Stockholders' Equity:
A financial statement that presents the factors that caused stockholders' equity to change during the period, including those that caused retained earnings to change.
Working Capital:
The difference between the amount of current assets and current liabilities.

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