ACC203 Chapter 2

classifies balance sheet for assets

1. current assets
2. long-term investments
3. property, plant, and equipment
4. intangible assets

classified balance sheet for liabilities and stockholders’ equity

1. current liabilities
2. long-term liabilities
3. stockholders’ equity

current assets

assets that a company expects to convert to cash or use up within its one year or its operating cycle

long-term investments

consist of


1. investments in stocks/bonds of other corporations held for more than one year


2. long-term assets such as land or buildings not used for operating activities
3. long-term notes receivable

property, plant, and equipment

assets that last relatively long that are currently used in operating the business

depreciation

the allocation of the cost of an asset to a number of years rather than expensing the full purchase price in the year of purchase.

intangible assets

assets that do not have physical substance but are very valuable

current liabilities

obligations that the company is to pay within the next year

long term liabilities

obligations that a company expects to pay afte’r one year

stockholders’ equity

1. common stock: investments of assets into the business by the stockholders
2. retained earnings: the income retained for the use of the business

Earnings per share

(Net income - preferred dividends)/weighted average common shares outstanding

Liquidity

The company’s ability to pay obligations expected to become due within the next year or operating cycle.

Working capital

Current assets - current liabilities

Current ratio

Current assets / current liabilities

measures liquidity

debt to assets ratio

total liabilities / total assets

the higher the ratio, the greater the risk that the company cannot pay debts as they come

free cash flow

describes the net cash provided by operating activities after adjusting for capital expenditures and dividends paid.