Advanced Accounting Ch. 14 Review

Match these definitions with the correct term.

• interest coverage ratio

• earnings before interest expense and taxes

• market value of a share of cost

• the number of times a company can cover its interest expense with its earnings

• EBIT

• a difference between net income and taxable income for more than one period that reverses out over the entire period

• temporary difference

• the price at which a share of stock may be sold on the stock market at any given time

• gross margin

• gross profit as a percent of net sales ​

Match these definitions.

• rate earned on average total assets

• the relationship between net income and average stockholders' equity

• rate earned on avg. stockholders' equity

• a ratio that measures the relationship of quick assets to current liabilities

• quick ratio

• net income after federal income tax divided by the number of outstanding shares of stock

• earnings per share (EPS)

• the amount of total current assets less total current liabilities

• working capital

• the relationship between net income and average total assets

Match these Definitions.

• cash equivalents

• Short-term, liquid investments that are readily convertible to cash and which mature in three months or less.

• current ratio

• purchases of plant assets used in the operation of a business

• debt ratio

• a ratio that measures the relationship of current assets to current liabilities

• capital expenditures

• total liabilities divided by total assets

• comparative financial statements

• financial statements that provide information for multiple fiscal periods

Match these terms.

• equity ratio

• the relationship between the market value per share and earnings per share of a stock

• price-earnings ratio

• the amount of common stockholders' equity belonging to a single share of common stock

• common equity per share

• a difference between net income and taxable income only for that year and that is never balanced out in a future year

• dividend yield

• the ratio found by dividing stockholders' equity by total assets

• permanent difference

• the relationship between dividends per share and market price per share

Match these correctly.

• free cash flow

• cash and other current assets that can be converted quickly into cash

• comprehensive income

• income from operations as a percent of net sales

• quick assets

• all changes in equity for the period, except changes caused by owner investments and owner distributions

• operating margin

• cash flows from operations less cash used for capital expenditures

T/F- A permanent difference between net income and taxable income is one that will balance out over time.

• True

• False

T/F- A business gets capital from two sources: (1) owners' investments and retained earnings and (2) loan.

• True

• False

T/F- Accrued items often lead to temporary differences between taxable income and net income.

• True

• False

T/F- The Securities and Exchange Commission (SEC) requires public companies to submit quarterly and annual report.

• True

• False

T/F- Market ratios tie together the financial statements and the stock market.

• True

• False