1 .Cash versus Accrual basis of accounting
2. Revenue Recognition
3. Matching Principles
4. Business entity concept/ Separate Entity Consumption
6. Unit-Of- Measure Assumption
7. Continuity( Going-Concern) Assumption
8. Historical Cost principal
Purpose: enhance returns to shareholders
1. debt-to-equity ratio p73
a. debt- to- equity ratio= total liabilities/ shareholders’ equity
b. assess the debt capacity: how much is financed by creditors and how much is financed by
c. Limits: can only indicate the debt capacity but cannot help investors understand whether
the company can support the amount of debt.
2. Total asset turnover ratio p126-127
a. How effective is management in generating sales from assets ( resources)?
b. Total asset turnover ratio= Sales ( or Operation) Revenues/ Average Total Assets
c. Average Total Assets= ( Beginning Total Assets+ Ending total assets)/2
d. A high asset turnover signifies efficient management of assets.
3. Return on assets (ROA) p133
a. How well has management used the total invested capital provided by debtholders and