Exam 2 Study Guide

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Exam 2 Study Guide

Over view of statement of cash flows and balance sheet


Pages:
2
Type:
Study Guide
School:
University of Alabama
Course:
Ac 310 - Finan Report Analy Bus Activ I
Finan Report Analy Bus Activ I Documents

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AC 310 7th Edition Exam # 2 Study Guide Lectures: 8 - 11 Lecture 8 (February 3) Balance Sheet Limitations:  Doesn’t portray the market value of the entity as a going concern nor its liquidation value  Employee skills and reputation are NOT recorded in the balance sheet Usefulness:  Describes many of the resources a company has for generating future cash flows  Provides liquidity information useful in assessing a company’s ability to pay its current obligations  Provides long-term solvency information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure Lecture 9 (February 5) Comparative Financial Statements: allow financial statement users to compare year-to-year financial position, results of operations, and cash flows Horizontal Analysis: expresses each item in the financial statements as a percentage of that same item in the financial statements of another year (base amount) **Across time Vertical Analysis: involves expressing each item in the financial statements as a percentage of an appropriate corresponding total, or base amount within the same year **Within same period Current ratio: measures a company’s ability to satisfy its short term liabilities (current assets divided by current liabilities) Acid-test ratio: provides a more stringent indication of a company’s ability to pay its current liabilities (quick assets divided by current liabilities) **Quick Assets exclude inventories and prepaids Debt to equity ratio: indicates the extent of how much a company relies on creditors for resources (total liabilities divided by shareholders’ equity) Times interest earned ratio: indicates the company’s ability to make interest payments (net income + interest expense + income taxes all divided by interest expense)



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