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MGMT 30A Study Guide - Quiz Guide: Free Cash Flow, Current Liability, Financial Statement

Course Code
Patricia Wellmeyer
Study Guide

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Profitability ratios: measures the operating success of a company for a given period of time
Liquidity: the ability of a company to pay obligations that are expected to become due within
the next year or operating cycle
Intangible assets: assets that do not have physical substance
Working capital: difference between the amounts of current assets and current liabilities
Solvency ratio: measures the ability of the company to survive over a long period of time
Cost constraint: constraint that weights the cost that companies will incur to provide the
information against the benefit that financial statement users will gain from having the
information available
Liquidity ratios: measures of the short term ability of the company to pay its maturing
obligations and to meet unexpected needs for cash
Operating cycle: the average time required to purchase inventory, sell it on account, and then
collect cash from customers, go from cash to cash
Timely: information that is available to decision makers before it loses it capacity to influence
Fair value pricing: assets and liabilities should be reported at fair value (the price received to
sell an asset of settle a liability)
Solvency: ability to pay interest as it comes due and to repay the balance of debt due at its
Ratio analysis: technique that expresses the relationship among selected items of financial
statement data
Understandability: information presented in a clear and concise fashion so that users can
interpret it and comprehend its meaning
Free cash flow: net cash provided by operating activities after adjusting for capital expenditures
and cash dividends paid
Materiality: whether an item is large enough to likely influence the decision of an investor or
Consistency: ability to compare the accounting information because they use the same
accounting information
Relevance: quality of information indicated the information makes a difference in a decision
Comparability: use the same accounting principles and methods from year to year within a
Periodicity assumption: assumption that the life of a business can be divided into artificial time
periods and that useful reports covering those periods can be prepared for the business
Verifiable: quality of information that occurs when independent observers, using the same
methods, obtain similar results
Faithful representation: information that is complete, neutral, and free from error
Classified balance sheet: groups together similar assets and similar liabilities, using a number of
standard classifications and sections
Going concern assumption: company will continue in operation for the foreseeable future
Monetary unit assumption: only those things that can be expressed in money are included in
the accounting records
Economic entity assumption: every economic entity can be separately identified and accounted
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