Ratios
This is the main profitability ratio. It measures the net income earned on each share of common stock.
What is EPS (Earnings Per Share)?
GAAP generally uses one of two measurement principles to assign the value to assets. Which is used more frequently?
What is historical cost principle?
States that the business will remain in operation for the foreseeable future
What is going concern assumption?
Used by companies to determine - What type of financial information to disclose? What format to use?How they should measure assets, liabilities, revenues, and expenses?
What is GAAP - Generally Accepted Accounting Principles?
You can do this when different companies use the same accounting principles.
What is comparability?
This is a measure of liquidity. It is calculated as the excess of current assets less current liabilities. It can either be stated as positive or negative. If this is positive the company is more likely to pay off it's short term liabilities.
What is working capital?
Companies record assets at the cost to acquire the asset at the time the asset is purchased using this principle.
What is Historical cost principle?
States that the life of a business can be divided into artificial time periods (4 quarters) and that useful reports covering those periods can be prepared for the business.
What is Periodicity Assumption?
This is a government agency that passed SOX in 2002.
What is the SEC Securities Exchange Commission?
Means that a company uses the same accounting principles and methods from year to year. Example - same method for depreciation.
What is Consistency?
This liquidity ratio measures the short-term ability to pay maturing obligations and meet unexpected needs for cash. It is calculated as current assets / current liabilities.
What is current ratio?
This cost evaluation principle is used only in situations where assets are actively traded.
What is Fair Value Principle?
This assumption requires that only those things that can be expressed in money are included in the accounting records. It argues that a transaction or business activity that is not quantifiable in a stable currency like the dollar should not be recorded in its financial information.
What is Monetary Unit Assumption?
This is the primary accounting standard-setting body in the United States.
What is Financial Accounting Standards Board (FASB)?
Information must be available to decision-makers before it loses its capacity to influence decision making.
What is Timely?
This leverage ratio measures the percentage of total financing provided by creditors rather than stockholders. Higher ratios imply greater risk that the company may be unable to pay its debts as they come due. It is calculated as Total Debt / Total Assets.
What is debt to assets ratio?
An important item that cannot reasonably be reported in the financial statements must be discussed in notes that accompany the statements. What principle is this referring to?
What is the full disclosure principal?
This assumption requires that business transactions must not blur with personal transactions.
What is Economic Entity Assumption?
Creates international accounting standards. It is used by over 115 countries.
What is International Accounting Standards Board (IASB)?
Information that is free from bias, accurate and reliable for stakeholders. This allows independent observers to use the same methods for evaluation and obtain similar results.
What is Verifiable?
This ratio is preferred when looking at a companies liquidity evaluation.
What is the Current Ratio?
Prepaid insurance would be classified on the balance sheet under this type of asset class.
What is a current asset?
This is an intangible asset that represents the excess purchase price paid for a company over the fair value of its identifiable assets.
What is goodwill?
Determines U.S. auditing standards and reviews the performance of audit firms like PWC, Deloitte, EY and KPMG.
What is Public Company Accounting Oversight Board (PCAOB)?
Information that is presented in a clear and concise fashion so that reasonably informed users of that information can interpret it and comprehend its meaning.
What is Understandability?