| A | B |
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| The general formula for the IS (income statement) is: | Revenues - Expenses = Net Income |
| The Balance Sheet (snapshot) is divided into three major categories: | Assets, Liabilities, Stockholders' equity |
| Assets (future benefit to the company) Examples are: | Is comprised of current assets; property, plant and equipment; long-term investments |
| Liabilities (represent obligations of the company by payment date | Is comprised of current liabilities, long-term liabilities |
| Stockholders' equity (represents residual claims of the owners) | Is comprised of contributed capital and retained earnings) |
| Fundamental Accounting Equation of ALS(E) | A(Assets) = L(Liabilities) + SE(Stockholders' Equity) |
| IS (Income Statement) shows in detail: | the components of net income |
| Revenue Definition: | Inflow of Assets (decrease of liabilities) due to company's operating activities |
| Expenses Definition: | Outflow of Assets (increase in liabilities) due to a company's operating activities. |
| IS (Income Statement) movie formula is: | Revenues - Expenses = Net Income |
| 4 Basic Financial Accounting Measurements | Economic entity; Fiscal Period; Going concern; stable dollar |
| Economic Entity | Icons like: Disney, General Electric, NBC |
| Fiscal Period (Periodicity) | Fiscal trade-offs of objectivity and timeliness calculated into accounting periods |
| Stable Dollar (monetary unit) measures the economic entity's performance | Dollar - maintains constant purchasing power; Inflation, changes the monetary unit's purchasing power |
| Input Market | Cost to purchase materials, labor, overhead |
| Output Market | Value received from sales of services or inventories |
| 4 Valuation Bases | Present, fair market, replacement cost, original cost |
| Replacement cost of inventories is valued by: | Valued at original cost or replacement cost; whichever is lower |
| 4 Principles of Recognition & Measurement are: | Objectivity, revenue recognition, matching, consistency |
| Objectivity principle requires that the values of transactions be ... | Verifiable and backed by documentation |
| Revenue Recognition Principle | Most common is when goods or services are transferred or provided to the buyer at delivery |
| Matching Principle | Efforts should be given to have the expenses matched against the revenues or benefits they generate... |
| Consistency Principle | Many are recognized, but be consistent and stay with it... |
| Exceptions (Constraints) to Basic Principles | Materiality and Conservatism |
| Auction Market | Floor brokers and specialists interacting with quotes and orders on the floor of the New York Stock Exchange. |
| Bid | The highest price anyone wants to pay for a security at a given time. |
| Broker | An agent who handles the public’s orders to buy and sell securities, commodities, or other property. For this service, a commission is charged. |
| Broker Booth Support System®(BBSS®): | A state-of-the-art orger management system designed exclusively for NYSE members |
| Commission | The broker’s basic fee for purchasing or |
| Floor Brokers | The largest single membership group |
| House Broker | An agent, employed by a brokerage |
| Hybrid Markets | NYSE’s new market model currently being phased in |
| Independent Broker | Member on the Floor of the NYSE who executes orders for more than one brokerage house |
| Initial Public Offering (IPO) | A corporation’s first offering of stock to the public |
| Liquidity | (1) How easily one’s assets can be converted back into cash (2) The market's ability to absorb a reasonable buying o selling |
| Listed Companies | Companies whose shares of stock trade on a securities market. |
| Offer | Companies whose shares of stock trade on a securities market. |
| Specialist | responsible for maintaining a fair and orderly market in the stocks they are allocated. At all times, specialists must put their customers’ interests above their own. |
| Stock | A “share” represents partial ownership in a company. Investors who purchase stock have voting rights at the company’s annual stockholders’ meeting. |
| Types of Stocks | common stock and preferred stock |
| Income Stocks | pay unusually large dividends that can be stock, but the price of the stock generally does not rise very quickly. used as a means ofgenerating income without selling the |
| Blue-Chip Stocks | Stocks issued by very solid and reliablestability.companies with long histories of consistent growth and |
| Growth Stocks | Stocks that pay little or no dividend due to needing earnings to produce growth |
| Mutual Funds | Most common funds that pool money from all their investors and buy different stocks with it. |
| Price/Earning Ratio (PE) | The price of a share of stock divided by the companys earning per share for the last yer. |
| Net Profit Margin= | Net Profit After Taxes divided by Total Revenues http://thismatter.com/money/stocks/valuation/profitability-ratios.htm |
| Return on Assets (ROA) | Net Profit Margin X Asset Turnover; or Net Profit divided by (Total Revenues divided Average Total Assets; or Net Profit divided Average Total Assets |
| Return on Equity = | Net Profit divided by average stockholders Equity |
| Debt-Equity Management Ratio= | Average Total Assets divided by Average Total Stockholders' Equity |
| ROE= | ROA x Debt - Equity Mgmt Ratio |
