Balance Sheet Review

What is the equation for current ratio?

Current assets' / current liabilities

What does it mean when current ratio is > 1.0 and net working capital > $0?

Current assets are greater than current liabilities

What does it mean when current ratio is < 1.0 and net working capital is < 1.0?

Current liabilities are larger than current assets, and firm could have trouble paying its bills

What is the equation for net working capital?

current assets - current liabilities

What are the two ways to interpret ratios?

1. Compare companies ratios to other companies

2. Look at trends in the companies ratios over time

What are examples of current assets?

1. Accounts receivable

2. Inventories

3. Prepaid expenses (like prepaid insurance)

What are the two types of non-current assets?

Fixed and intangible assets

What are examples of fixed assets?

1. Land

2. Buildings

3. Equipments

What are other terms for non-current assets?

1. Plant assets

2. PP&E (property, plant, equipment)

What are examples of intangible assets?

1. Patents

2. Trademarks

3. Copyrights

4. Goodwill

What are current assets?

Asset that is expected to be converted into cash or used up within 1 year of balance sheet date

What are non-current assets?

Assets expected to last more than one year

What are current liabilities?

Debts due within one year of the balance sheet data. Preferable that current liabilities are smaller than current assets

What is another term for working capital?

Net

What are non-current liabilities (long term debts)?

Debts maturing in more than 1 year from the balance sheet

How do you find total liabilities?

Current liabilities + long-term debt

What is reported before common stock in the owners equity section?

Preferred stock

How do you calculate common equity with retained and treasury?

 

                                   common             additional paid-in           retained        treasury

common equity  =      stock         +     capital for common   +    earnings  -     stock

How do you find common equity with total OE and preferred equity?

Total OE - preferred equity

IF the corporation has not issued preferred stock, then what is all of its owners equity?

All of its OE is common equity

What do current assets + non-current assets equal?

Total assets

What does preferred equity + common equity equal?

Total owners equity