ACTG 2200 Study Guide - Final Guide: Current Liability, Accounts Receivable, Interest Expense

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Equations
Goodwill
Purchase price Net fair value
o Net Fair Value = assets liabilities
Current Ratio
Current assets / current liabilities
> better because more likely paid
Acid Test
Quick assets / current liabilities
Quick assets = cash + s/t investments / Acc. Rec.
> better
Stated Annual Interest Rate
Total cash paid / FV
Market Annual Interest Rate
Total interest expense / Carrying value
Return On Equity (ROE)
Net income / avg. stockholders’ equity
Market Value of Equity
Stock price * shares outstanding
Return on Market Value of Equity
Net income / market value of equity
Price Earnings Ratio
Stock price / earnings per share
Earnings per share
[Net income dividends on preferred stock] / shares c. stock outstanding
Debt to Equity Ratio
Total Liabilities / Stockholders’ Equity
Lower is less risky
Times Interest Earned Ratio
[Net income + int. exp. + tax exp.] / int. exp.
Lower better able to meet interest payments as they are due
Gross Profit Ratio = Gross Profit / Net Sales
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Gross Profit = Net Sales COGS
Net Income = Gross Profit Operating Expenses
COGAS = Inv. (beg) + purchases
COGS = COGAS Inv. (end)
COGS = Inv. (beg) + purchases Inv. (end)
Net Sales Revenue = COGS + Operating Income + Operating Expenses
Turnover Ratios
Receivables
o Net Credit Sales / Avg. AR
o # times A/R balance is collected
o Higher preferred
Collection Period
o 365 / Receivables turnover
o # days A/R balance is outstanding
o Lower preferred
Inventory
o COGS / Avg. Inventory
o # times firm sells avg. inventory balance during reporting period
o Higher = more effective of managing investment in inventory
AR Turnover
o Sales on acct / avg. accts receivable
Statement of Cash Flows (cash flows in OR out)
Midterm
Operating
o + Net income
o + Adj Depr. Exp
o + Adj Loss on Sale of Land
o - Acc. Rec.
o + Acc. Pay
o - Inventory
o - Ppd Rent
Investing
o - Equipment
o + Cash from Sale of land
Financing
o + issue common stock
o payment of dividends
o - payment of notes payable
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Operating
o Net income
Revenues and expenses
o Changes in current assets and liabilities
Changes in current assets
Changes in current liabilities
o Other EX
Sell goods for cash
Decrease in accounts payable
Depreciation expense
Decrease in accounts receivable
Increase in inventory
Pay employees salaries
Collect cash from customers for service provided
Pay for supplies purchased
Investing
o Property plant equipment
o Investments
o Changes in long term assets
o Other EX
Buy equipment
Purchase of equipment
Collection of notes receivable
Purchase of a patent
Financing
o Equity
o Long term debt
Changes in long term liabilities
Changes in common stock
Changes in retained earnings
o Other EX:
Selling common stock
Payment of dividends
Issuance of note payable
Repay borrowing to the bank
Non-cash
o Other EX:
Exchange of long term assets
Purchase equipment with note payable
Provide services to customers on account
Purchase supplies on account
Operating Activities
Inflows
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