Exam 10: Understanding a Firms Financial Statements

Martina invested her savings into her business when she started it.Later she added more capital and she has kept some of her profits.Together these are known as:

Match the term with its definition. a.Cost of goods sold b.Gross profit c.Long-term notes d.Net profits e.Operating profits f.Profit margins g.Profits before taxes h.Total asset turnover -A measure of how efficiently a firm is using its assets to generate sales

Match the term with its definition. a.Accrual-basis accounting b.Cash-basis accounting c.Current ratio d.Financial statements e.Liquidity f.Operating profit margin g.Return on assets h.Return on equity -A measure of the rate of return that owners receive on their equity investment,calculated by dividing net profits by owners' equity

Match the term with its definition. a.Accrual-basis accounting b.Cash-basis accounting c.Current ratio d.Financial statements e.Liquidity f.Operating profit margin g.Return on assets h.Return on equity -A firm's income statement,balance sheets,and cash flow statements

Lance is trying to decide whether to purchase a new bulldozer to expand his business.He is confident he has enough work to keep the bulldozer busy and that repaying the loan will not be a problem.What advice would you give Lance?

To calculate his company's _______________,Edgar will subtract operating expenses from gross profits.

Comparing this year's results to last year's,Hector discovered that his firm's current ratio improved from 1.5 to 2.0.What has happened?

Match the term with its definition. a.Cost of goods sold b.Gross profit c.Long-term notes d.Net profits e.Operating profits f.Profit margins g.Profits before taxes h.Total asset turnover -Earnings that may be distributed to the owners or reinvested in the company

Match the term with its definition. a.Balance sheet b.Debt c.Dividend d.Financial leverage e.Mortgage f.Owners' equity g.Retained earnings h.Working capital cycle -The impact of financing with debt rather than with equity

Match the term with its definition. a.Cost of goods sold b.Current ratio c.Debt ratio d.Depreciable assets e.Income statement f.Interest expense g.Inventory h.Net fixed assets -Assets whose value declines over time

Match the term with its definition. a.Cost of goods sold b.Current ratio c.Debt ratio d.Depreciable assets e.Income statement f.Interest expense g.Inventory h.Net fixed assets -A measure of what percentage of a firm's assets is financed by debt

Match the term with its definition. a.Balance sheet b.Debt c.Dividend d.Financial leverage e.Mortgage f.Owners' equity g.Retained earnings h.Working capital cycle -Profits not paid out as dividends over the life of a business

Cameron and Ashley bought $40 of "premium pink lemonade mix" and paper cups for their lemonade stand.These items are considered:

Match the term with its definition. a.Accrued expenses b.Cash flow activities c.Cash flow statement d.Fixed assets e.Gross fixed assets f.Long-term debt g.Other assets h.Short-term notes -Operating expenses that have been incurred and are owed but not yet paid

Match the term with its definition. a.Cost of goods sold b.Current ratio c.Debt ratio d.Depreciable assets e.Income statement f.Interest expense g.Inventory h.Net fixed assets -A measure of a company's relative liquidity

The liquidity of a firm is

Match the term with its definition. a.Cost of goods sold b.Current ratio c.Debt ratio d.Depreciable assets e.Income statement f.Interest expense g.Inventory h.Net fixed assets -The cost of producing or acquiring goods or services to be sold by a firm

The debts that Rhonda's company will repay within the next ______________ are considered to be current debt.

Erin,the owner of Sweets To Eat Ice Cream Shoppe,wants to know how her company is operating from a financial perspective.Her CPA has given her the following numbers: Sales $325,000,Operating Profits $50,000,Current Assets $125,000,Current Liabilities $40,000,and Total Assets $350,000.The ice cream retail industry norms include Operating Profit Margin 10%,Return on Assets 11% and Current Ratio 2.7.Determine the company's profitability on its assets and compare to the industry ratios.

It is important for Heather to monitor her cash flow because: