financial statement analysis is useful for quizlet

Financial statement analysis is a significant business activity because a corporation's financial statements provide useful information on its economic standing and profit levels. change in RE = NI - Dividends. Assume no other changes than those listed. Which of the following would be most detrimental to a firm's current ratio if that ratio is currently 2.0? The current ratio, also known as the working capital ratio, measures the capability of measures a company’s ability to pay off short-term liabilities with current a… Most common types are: Current Ratiomeasures the extent of the number of current assets to current liabilities. Vertical 2. PLAY. The use of alternative accounting methods: Suppose you are comparing two firms in the steel industry. Which suppliers of funds bear the greatest risk and should therefore earn the greatest return? 4. GTacot1. At a more r They use financial statement analysis to determine what to do with their investments in the company. A times interest earned ratio of 0.90 to 1 means that, If a firm has substantial capital or financing leases disclosed in the notes but not capitalized in the financial statements, then the, The return on assets ratio is affected by the, Stockholders are most interested in evaluating, The set of ratios that are most useful in evaluating profitability is. Typically, which of the following would be considered to be the most indicative of a firm's short-term debt paying ability? Profitability 6. Learn. Each of the following methods gives visibility into trends that your business may have. Financial Analysis Present and prospective stakeholders of entity like to obtain information regarding its financial position and financial performance. Tyner Company had P250,000 of current assets and P90,000 of current liabilities before borrowing P60,000 from the bank with a 3-month note payable. Profitability 4. This need is served by entity’s general public finance statements that are prepared by the management of the entity and are usually audited by the external auditor. Which of the following actions will increase a firm's current ratio if it is now less than 1.0? Based on this information we could conclude that, A firm has a current ratio of 1:1. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time. Which ratio is most helpful in appraising the liquidity of current assets? Investors use common size financial statements to make it easier to compare a company to its competitors and to identify significant changes in a company's financials. Also reports amounts paid by stockholders to purchase common stock and preferred stock, Retained earnings + Net Income - (Dividends), Contributed capital, beginning + issuance of shares - (Repurchase to retire shares), reports cash inflows + cash outflows during an accounting period, amounts to be recieved in the future from customers, amounts that the corporation must pay to suppliers in the future, portion of assets the owners are free and clear of any liabilities, amounts paid by stockholders to purchase common stock and preferred stock, Net income earned by the company since its incorporation and not yet distributed as dividends, largest expense item which reports the wholesale costs of inventory sold during the accounting period, relate to a company's main business: selling products or services to earn net income, relate to the need for investing in property, plant, and equipment or expanding by making investments in other companies, relate to how a company finances its assets with debt or stockholders' equity, rules that management must follow when preparing financial statements available to investors, most accounting reporting standards that formulate GAAP are set by the 7 full time voting members, attest to whether a company's financial statements comply with the GAAP rules, defines ethical behavior code of professional conduct, establish auditing standards and conduct inspections of the public accounting firm that perform audits, legislative authority to set the reporting rules for accounting info of publicly held corporations, states that companies should record assets and services at their acquisition cost, the amount paid for them, because this is the most reliable information, compares all amounts within one year to revenue of that same year, compares all amounts within on year to total assets of that same year, a company's ability to pay liabilities as they come due in the next year, a company's ability to pay liabilities for many years into the future, expected to be converted into cash, sold, or consumed within the next 12 months, actual currency, bank accounts, and investments that can be liquidated immediately, Monies to be recieved by the company from customers, cost of television programs that will be aired during the next year, cost allocated to each year of the assets life, total amount of depreciation expensed since the assets' date of purchase, patents, trademarks, and copyrights that have value but not any physical presence, extra value that is recorded when buying another company, borrowing corporation records bonds payable, entity loaning the money records a bond recievable, entities owning shares of stock are the owners of the corporation, refer to revenues from the sale of merchandise, Indicate that returns or discounts were subtracted from total sales, revenues are recorded in the period earned, not necessarily in the period that the company collects the money, idea that accountants usually record transactions when they occur, not necessarily when cash is recieved or paid, records transactions when cash is recieved or paid, equals the difference between revenues and cost of sales, includes all costs of generating sales besides cost of sales, Subtracting operating expenses from gross profit (Income from Operations), arise from the sale of long-lived assets or investments, accountants deem unusual and infrequent, may appear in the bottom section of the income statement, recored when a company closes down or sells part of its business, highly unusual transactions that are considered unusual in nature and infrequent in occurence, measures how efficiently you can generate desired outputs from given inputs, shares are bought and sold on stock exchanges such as the New york stock exchange, when a company sells stock to the public for the first time as a publicly traded corporation, stock bought back from investors not recorded as an asset because it is impossible for a company to own itself, the total number of shares actually held by investors at a given time, a legal value assigned to each share of stock, carries a dividend rate which must be paid to preferred stockholders before any dividends can be paid to common stockholders, recorded in stockholders equity 1. unrealized gains/losses on certain securities 2. A financial analysis of a company's financial statements—along with the footnotes in the annual report—is essential for any serious investor seeking to understand and value a … Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-term obligations. Creditors are interested in knowing if a company will be able to honor its payments as they become due. Terms in this set (48) common stock = par value * # shares. While there are dozens of ratios that can be calculated, most nonprofits can use a handful of them to learn more about their financial condition. Which of the following could cause return on assets to decline when net profit margin is increasing? The general purpose of the financial statements is to provide information about the results of operations, financial position , and cash flows of an organization. STUDY. Foreign currency translation adjustments 3. Spell. All of the following are asset utilization ratios except: Total asset turnover measures the ability of a firm to: A measure of how efficiently a company uses its assets to generate sales is the, Long-term creditors are usually most interested in evaluating, Trading on the equity (leverage) refers to the. Which type of numbers would be most meaningful for statement analysis? Which of the following reasons should not be considered in order to explain why the receivables appear to be abnormally high? Which of the following comments does not represent a fair statement as to the management perspective? Balance Sheet Analysis … Chapter 3 : Financial Statement analysis. Users of Financial Statement Analysis. The most common types of financial analysis are: 1. Financial analysis can be used to detect apparent liquidity problems. Which of the following statements best represents an analysis of the long-term debt position of these two firms? Which one of the following would not be considered a liquidity ratio? Vertical analysis is a tool to evaluate individual financial statements items or a group of items in terms of a specific base amount. Growth 5. They are: Creditors. Ideas of Financial Statement Analysis With our lesson, Financial Statement Analysis: Definition, Purpose, Elements & Examples, you'll be able to answer that question. Which one of the following ratios would not likely be used by a short-term creditor in evaluating whether to sell on credit to a company? Which of the following is the most of interest to a firm's suppliers? A firm with a lower net profit margin can improve its return on total assets by. Statement of Stockholders equity reports if the earnings of this accounting period are distributed as dividends or retained in the business as retained earnings. Which of the following does not represent a problem with financial analysis? The term may refer to an assessment of how effectively funds have been invested. Considering the different requirements of internal management, the content of financial statement analysis is very extensive. Which of the following actions would do the most to improve the ratio in the short run? For a more technical financial analysis, ratios can be used to deepen understanding and interpretation. A financial analysis is an assessment of how viable, stable, solvent, and profitable a business or project is. Which of the following will not cause times interest earned to drop? Variance 2. The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred to as: Using financial leverage is a good financial strategy from the viewpoint of stockholders of companies having: The ratio that indicates a company's degree of financial leverage is the. A financial analysis may also be an assessment of the value and safety of debtors’ claims against the company’s assets. The ratios that are used to determine a company's short-term debt paying ability are. Recently the M&M Company has been having problems. In the near term, the important ratios that provide the information critical to the short-run operation of the firm are: The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as: The primary concern of short-term creditors when assessing the strength of a firm is the entity's, Short-term creditors are usually most interested in assessing, The two categories of ratios that should be utilized to asses a firm's true liquidity are the. Oakland Enterprises has net income of P2,500,000. The percentage analysis of increases and decreases in individual items in comparative financial statements is called: In which of the following cases may a percentage change be computed? Liquidity 7. Definition: Financial statement analysis is the use of analytical or financial tools to examine and compare financial statements in order to make business decisions. Financial statement analysis is a method or process involving specific techniques for … What might you assume about Tri-C? Choose from 500 different sets of analysis financial statement flashcards on Quizlet. Financial statements provide the fundamental information that we use to analyze and answer valuation questions. Certain gains/losses on pension plans, proportional increases in the number of shares outstanding, smaller proportional increases in the number of shares outstanding, Net Income-Preferred Dividends/Common Stockholders equity, Net Income-Preferred dividends/Average number of common shares outstanding, Stock market trading price of the company's common stock, companies divide net income by the actual average number of common shares outstanding, contracts that give their holders the right to buy or sell shares of stock at a certain market price, Annual common stock dividends paid/average number of common shares outstanding. Degrees of importance information is used by the readers of financial statement analysis to what... 3: financial statement analysis emphasizes four areas are considered the _____ of financial analysis! Information is used by the readers of financial statement analysis: Definition Purpose. 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