Financial Planning Exam 1
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Created by:
haleyluter on February 6, 2012
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38 terms
Terms | Definitions |
|---|---|
 income statement | device to measure the profitability of a firm over a defined period of time |
| net income | the number at the bottom of the income statement |
| statement of retained earnings | transitions from the income statement to the balance sheet |
| price-earnings (P/E) ratio | multiplier applied to earnings per share to determine current value of common stock |
| price-earnings (P/E) ratio | allows comparison of the relative market value of many companies |
| balance sheet | indicates what the firm owns and how these assets are financed in the form of liabilities or ownership interest (a picture of the firm at a point in time) |
| liquidity | how fast we can turn an asset into cash |
| current assets | items that can be converted to cash within one year |
| cash | most liquid asset |
| marketable securities | temporary investments of excess cash, 2nd most liquid asset |
| accounts receivable | allowance for bad debts to determine their anticipated collection value, 3rd most liquid asset |
| inventory | includes raw materials, goods in progress, or finished goods, least liquid asset |
| prepaid expenses | long-term asset, represent future expense items that are already paid for |
| investments | long-term commitment of funds (at least one year); includes stocks, bonds, or investments in other corporations |
| plant and equipment | long-term asset, carried at original cost minus accumulated depreciation |
| liabilities | financial obligations of the firm that move from current to long-term |
| accounts payable | short-term obligation, amount owed on open account to suppliers |
| notes payable | short-term signed obligations to the banker or other creditors |
| accrued expense | short-term; payment not made for the obligation incurred on the services rendered |
| stockholder's equity | represents total contribution and ownership interest of preferred and common stockholders |
| net worth | stockholder's equity - preferred stock = |
| statement of cash flows | emphasizes critical nature of cash flow to the operations of the firm |
| statement of cash flows | represents cash/cash equivalent items easily converted to cash within 90 days |
| profitability | __________________ ratios: profit margin return on assets (investment) return on equity |
| asset utilization | _________________ ratios: receivable turnover average collection period inventory turnover fixed asset turnover total asset turnover |
| liquidity | _________________ ratios: current ratio quick ratio |
| debt utilization | _________________ ratios: debt to total assets times interest earned fixed charge coverage |
| profitability | _________________ ratios measure the firm's ability to earn adequate return on: sales assets invested capital |
| asset utilization | _________________ ratios measure the speed at which the firm is turning over: accounts receivable inventory long-term assets |
| liquidity | _________________ ratios emphasize the firm's ability to pay off short-term obligations as they come due |
| debt utilization | _________________ ratios estimate the overall debt position of the firm; evaluates in the light of asset base and earning power |
| profitability | potential investors/security analysts are primarily concerned with _______________ ratios |
| liquidity | bankers and trade creditors are primarily concerned with _________________ ratios |
| debt utilization profitability | long-term creditors are primarily concerned with _________________ and _______________ ratios |
| asset utilization | _________________ ratios relate the balance sheet (assets) to the income statement (assets) |
| replacement cost | reduces income but increases assets |
| disinflation | a situation of declining inflationary pressures |
| deflation | actual reduction of prices affection everybody due to bankruptcies and declining profits |
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