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25 Cards in this Set

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  • Back
Why would a company want to issue bonds instead of stock?
1. Stockholders maintain control
2. Interest expense is tax-deductible
3. The impact on earnings is positive
Bond Principal
Amount that is:
1. payable at the maturity date and
2. on which the periodic cash interest payments are computed

Also called par value, face amount, maturity value
Return on Assets (calculation and what does it show?)
Net Income divided by Average Total Assets

Shows how much the firm earned for each dollar of investment
Net Profit Margin (calculation and what does it show?)
Net Income divided by Net Sales

Shows how much of every sales dollar is profit
Asset Turnover (calculation and what does it show?)
Net Sales divided by Average Total Assets

Shows how many sales dollars the company generates with each dollar of assets
Debt-to-Equity ratio (calculation and what does it show?)
Total Liabilities divided by Stockholder's Equity

Shows how much a company relies on funds provided by creditors compared to funds provided by investors
Times interest earned ratio (calculation and what does it show?)
Net Income + Interest Expense + Income Tax Expense ALL divided by Interest Expense

Measures a company's ability to generate resources from current operations to meet its interest obligations
Earnings Per Share (calculation and what does it show?)
Net Income divided by the Average number of outstanding shares for the period
Unsecured bond; no assets are are specifically pledged to guarantee repayment
Callable Bond
May be called for early retirement at the option of the issuer
Convertible Bond
May be converted to other securities of the issuer (usually common stock)
Zero Coupon Bond
A bond that doesn't pay any period cash interest payments. They're bought by investors because they sell for a deeply discounted price.
Corporation (definition along with their advantages)
A corporation is a separate legal entity (authorized by law to operate as an individual).

-Transfer-ability of ownership
-Limited liability to the owners
-the ability to accumulate large amounts of resources
Who are the players in the accounting process (in general)?
Board of Directors
Info Intermediaries
Securities and Exchange Comission (SEC) - protects investors, maintains integrity of securities market

Financial Accounting Standards Board - sets GAAP

Public Company Accounting Oversight Board - Sets auditing standards for independent auditors (CPAs) of public companies
Managers (what's their responsibility?)
Primary responsible for the information in the financial statements and disclosures

CEO - highest officer of the company

CFO - highest officer associated with the financial/accounting side of business

Accounting Staff - prepare the details of the reports and bear professional responsibility for the accuracy of the information
Board of Directors (responsibility?)
Responsible for ensuring that processes are in place for maintaining the integrity of the company’s accounting, financial statement preparation, and financial reporting

Audit Committee - responsible for hiring the company's independent auditors (also meets with them to discuss managers' compliance with their financial reporting responsibilities)
Independent auditors are responsible for following established auditing standards to assess the fairness of the financial statements and related presentations

They sign an unqualified (clean) opinion which states that the financial statements are fair presentations in all material respects in conformity with GAAP
Information Intermediaries
Financial Analysts that receive accounting reports and other information about the company from electronic information services

They also gather information through conversations with company executives and visits to the company's facilities and their competitors
Institutional Investors - includes pension, mutual, endowment and other funds that invest on the behalf of others

Private Investors - Individuals who purchase shares in companies

Lenders or Creditors - Suppliers, banks, commercial credit companies, and other financial institutions that lend money to companies
High-Value Strategy
Relying on R&D and product promotion to
convince customers of the superiority of
your product
Low-Cost Strategy
Relying on efficient management of accounts receivable, inventory and productive assets
to produce high asset turnover
Form 10-Q
Quarterly report filed by public companies with the SEC that contains additional unaudited financial information
Form 10-K
Annual report filed by public companies with the SEC that contains additional detailed financial information
Form 8-K
Report of special events (e.g., auditor changes, mergers) filed by public companies with the SEC