Accounting-basics

These flashcards cover essential financial accounting concepts, formulas, and definitions to prepare for the exam.

Assets formula is..

Assets=liabilities+Equity

that shows what a company owns is funded by debt and owners' funds.

Net Income

Calculated as Revenue - Expenses; it indicates the profit a company makes after costs.

Gross Profit

Calculated as Revenue - Cost of Goods Sold (COGS); it reflects the profit after producing goods.

Operating Profit (EBIT)

Profit from regular business calculated as Gross Profit - Operating Expenses.

Working Capital

Calculated as Current Assets - Current Liabilities; it measures short-term liquidity.

Current Ratio

Calculated as Current Assets ÷ Current Liabilities; indicates the ability to pay current obligations.

Quick Ratio

Calculated as (Current Assets - Inventory) ÷ Current Liabilities; measures liquidity without inventory.

Debt to Equity Ratio

Calculated as Total Liabilities ÷ Shareholder's Equity; indicates the debt used compared to owners' funds.

Return on Equity (ROE)

Calculated as (Net Income ÷ Shareholder's Equity) × 100; measures profit earned for each dollar of equity.

Return on Assets (ROA)

Calculated as (Net Income ÷ Total Assets) × 100; shows how efficiently assets earn profit.

Earnings per Share (EPS)

Calculated as Net Income ÷ No. of Outstanding Shares; indicates profit earned per share.

Inventory Turnover

Calculated as Cost of Goods Sold ÷ Average Inventory; indicates how often inventory is sold.

Accounts Receivable Turnover

Calculated as Net Credit Sales ÷ Average Accounts Receivable; measures the speed of collecting receivables.

Accounts Payable Turnover

Calculated as COGS ÷ Average Accounts Payable; shows how quickly a company pays its suppliers.

Cash Ratio

Calculated as (Cash + Cash Equivalents) ÷ Current Liabilities; the most strict liquidity ratio.

Operating Margin

Calculated as (Operating Income ÷ Revenue) × 100; shows the percentage of sales that is profit.

Net Profit Margin

Calculated as (Net Income ÷ Revenue) × 100; indicates overall profitability of a company.

Book Value per Share

Calculated as Shareholder's Equity ÷ Number of Outstanding Shares; indicates the per share value of a company's net worth.

Price to Earnings Ratio (P/E)

Calculated as Market Price per Share ÷ Earnings per Share; reflects how much investors are willing to pay for earnings.

Dividend Payout Ratio

Calculated as (Dividend per Share ÷ Earnings per Share) × 100; shows the percentage of profit given as dividends.