MGMT 200 8-12

Acid Test Ratio

cash, current investments, and accounts receivable divided by current liabilities

commercial paper

borrowing from another company rather than from a bank

contingencies

uncertain situations that can result in a gain or loss for a company

contingent gain

an existing uncertain situation that might result in a loss

What are current liabilities based on?

Mostly due within one year from the balance sheet date, or the operating cycle if longer.

How are current liabilities determined for companies with operating cycles longer than a year?

Based on the length of the operating cycle, not necessarily one year.

current portion of long-term debt

debt that will be paid within one year from the balance sheet date.

current ratio

current assets divided by current liabilities

What are debt covenants?

An agreement between a borrower and a lender

What do debt covenants require?

Certain minimum financial measures to be met

What can happen if debt covenants are not met?

The lender can recall the debt

What is deferred revenue?

Cash received in advance from a customer for products or services to be provided in the future

FICA taxes

based on the federal insurance contributions act. Tax withheld from employees paychecks and matched by employers for social security and medicare

fringe benefits

Additional employee benefits paid for by the employer

liability

an amount owed

What is a line of credit?

An informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.

What does a line of credit allow a company to do?

Borrow up to a prearranged limit without having to follow formal loan procedures and prepare paperwork.

Liquidity

having sufficient cash ( or other assets convertible to cash in a relatively short time) to pay currently maturing debts

Notes Payable

written promises to repay amounts borrowed plus interest

quick assets

includes only cash, current investments, and accounts receivable

Sales Tax Payable

Sales tax collected from customers by the seller, representing current liabilities payable to the government

unemployment taxes

a tax to cover federal and state unemployment costs paid by the employer on behalf of its employees

working capital

current assets - current liabilities

aggressive accounting practices

practice that result in reporting higher income, higher assets, and lower liabilities

Average Collection Period

365/accounts receivable turnover

Capital Structure

the mixture of debt and equity maintained by a firm

conservative accounting practices

practices that result in reporting lower income, lower assets, and higher liabilities

Discontinued Operations

the sale or disposal of a significant component of a company's operations

earnings per share

net income available to common shareholders divided by average shares of common stock outstanding

Gross Profit

net sales - cost of goods sold

Solvency

refers to a companies ability to pay its current and long term liabilities

value stocks

stocks that tend to have lower price-earnings ratios and are priced low in relation to current earnings

vertical analysis

expresses each item in a financial statement as a percentage of the same base amount