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Terms in this set (55)
What are the three framework objectives?
Operations, reporting and compliance
What are the five components of internal control?
Control environment, risk assessment, information and communication, monitoring, (existing) control activities
What principles are associated with the control environment?
Commitment to ethical values and integrity, board independence and oversight, organizational structure, commitment to competence, accountability
What are the principles associated with risk assessment?
Specify objectives, identify and analyze risk, consider the potential for fraud, identify and assess changes
What are the principles associated with information and communication?
Obtain and use information, internally communicate information, communicate with external parties
What are the principles associated with monitoring activities?
Ongoing and/or separate evaluations, communication of deficiencies
What are the principles associated with (existing) control activities?
Select and develop control activities, select and develop technology controls, deploy through policies and procedures
Under the framework, an effective system of internal control requires:
All five components and seventeen principles that are relevant to be both present and functioning.
The term "present" means what?
That the components and relevant principles are included in the design and implementation of the internal control system.
The term "functioning" demonstrates what?
That the components and relevant principles are currently operating as designed in the internal control system.
What are the component of ERM?
Internal environment, setting objectives, event identification, assessment of risk, risk response, control activities, information and communication, monitoring.
When traditional costing is used, the application of overhead is accomplished in two steps:
Step 1: Calculated overhead rate = Budgeted overhead cost / Estimated cost driver
Step 2: Applied overhead = Actual Cost driver * Overhead rate (from Step 1)
How do you calculate equivalent units under the weighted average method?
Two steps: Add unit completed and the percentage completed of Ending WIP
How do you calculate equivalent units under the FIFO method?
Three steps: Take the sum of the percentage to be completed in Beginning WIP, Units completed in Beginning WIP, and percentage completed in Ending WIP
How do you compute the cost per equivalent unit with the weighted average method?
Take the sum of the Beginning cost and current costs and divide it by the equivalent units.
How do you compute the cost per equivalent unit with the FIFO method?
Current cost only divided by equivalent units
Degree of operating leverage
Percentage change in earnings before interest and taxes divided by percentage change in sales
Degree of financial leverage
Percentage change in earnings per share divided by percentage change in earnings before interest and taxes
What are the three common methods of computing the cost of retained earnings?
Capital asset pricing model, discounted cash flow, bond yield plus risk premium
Capital Asset Pricing Model
Risk-free rate plus Beta multiplied by the Market rate minus the Risk-Free rate
Discounted cash flow
Dividend per share expected at the end of one year divided by current market value or price of the outstanding common stock plus the constant rate of growth in dividends
Bond yield plus risk premium
Pre-tax cost of long-term debt plus market risk premium
Return on Investment
Income divided by Investment Capital or Profit margin multiplied by Investment Turnover
Profit Margin
Income divided by sales
Investment turnover
Sales divided by invested capital
Return on Assets
Net income divided by Average total assets
Return on Equity
Net income divided by total equity
Net profit margin
Net income divided by sales
Asset turnover
Sales divided by average total assets
Financial leverage
Average total assets divided by equity
DuPont return on equity
Net profit margin times asset turnover times financial leverage
Residual income
Net income minus required return
Required return = Net book value (Equity) times Hurdle Rate
Economic Value Added
Net operating profit after taxes minus weighted average cost of capital in dollars
Times interest earned
Earnings before interest and taxes divided by interest expense
Net working capital
Current assets minus current liabilities
Current ratio
Current assets divided by current liabilities
Quick ratio
Cash plus marketable securities plus receivables divided by current liabilities
APR quick payment discount
360 divided by Pay period minus discount period multiplied by Discount divided by 100 minus discount
Cash conversion cycle
Inventory conversion period plus receivables collection period minus payables deferral period
Operating cycle
Inventory conversion period plus receivables collection period
Inventory turnover
Cost of goods sold divided by average inventory
Inventory conversion period
365 divided by inventory turnover
Accounts receivable turnover
Sales divided by average accounts receivable
Receivables collection period
365 divided by accounts receivable turnover
Accounts payable turnover
Cost of goods sold divided by average accounts payable
Accounts payable deferral period
365 divided by accounts payable turnover
Economic Order Quantity
The square root of 2 times Annual Sales times Order cost divided by Carrying Cost per Unit
Cost of preferred stock
Preferred stock dividends divided by net proceeds of preferred stock
Payback period
Net initial investment divided by increase in annual net after-tax cash flow
Present value of a lump-sum
Future value divided by 1 minus interest rate to the power of n number of days
Present value of an ordinary annuity
1 minus the present value of a lump-sum divided by Interest rate
Profitability index
Present value of net future cash inflow divided by Present value of net initial investment
Return on common equity
Net income minus preferred dividends divided by Average common equity
Weighted average interest rate (cost of debt)
Effective annual interest payments divided by debt cash available
Working capital turnover
Sales divided by average working capital
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