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Unformatted text preview: Statement of cash flows
A summary of money flowing in and out of a firm. Is the financial statement used to assess the sources and uses of cash during a certain period. Cash flow from operating activities. Those related to the production of the firms good services. Cash flow from investment activities. Those related to the purchase and sale of fixed assets. Cash flow from financing activities. Those related to debt and equity financing. Liquidity Liquidity is defined as the speed at which an asset can be converted to cash. Most liquid assets are: cash, money market accounts, certificates of deposit (CD's), accounts receivable ( credit card sales) Least liquid assets are: real estate, stocks, and bonds. Liquidity Ratios
Current Ratio AcidTest (Quick) Is the ratio of total Ratio current assets to Is like the current total current ratio except that it liabilities. excludes inventory, which is the leastliquid current asset. Net Profit Margin Net Working (Also called Return on Capital Sales) Thought not really Measures the a ratio, is often percentage of each used to measure sales dollar a firm's overall remaining after all liquidity. expenses, including taxes, have been deducted. Return on Equity (ROE) Measures the return that owners receive on their investment in the firm, a major reason for investing in a company's stock. Earnings Per Share (EPS) Is the ratio of net profit to the number of shares of common stock outstanding. It measures the number of dollars earned by each share of stock. Inventory Turnover Debt to Equity Ratio Ratio Measures the relationship between Measures the speed the amount of debt with which inventory financing moves through the (borrowing) and the firm and is turned amount of equity into sales. financing (owners' funds). Initially began with auditors being labeled as "beancounters". They expanded the types of nonauditing services they provided, but they led to fraudulent cases. Investors didn't trust the system wasn't trustworthy because the reports weren't reliable.
The Sarbanes-Oxley Act changed most this system to make it more thorough. It ended the self regulation system for auditing and made the standards higher. Trends in Accounting In the 1980s,auditors began to look at the strengths and weakness of the company. They became more involved with the operations. They provided more information such as business strategy, human resources, technology, and management services. Eight specific types of nonaudit services that are no longer provided: Book keeping Human resources Client's accounting records Internal auditing Investment services Legal services Design and implementation Management function The profession regulated it system and practices through organizations such as AICPA until 2002. The SarbanesOxley Act made it so that auditors' views were more conservative and they would seriously evaluate data rather than follow whatever the client tells them. It promotes their independence and willingness to ask corporate client The board of directors must take greater responsibility The audit committee is responsible for monitoring internal accounting controls, monitors the company's choice of accounting policies, and accounting issues. They choose an independent auditor to oversee the corporate auditor's work. Small businesses Small business found it unfair because by the accounting rules that are being placed because of larger companies. So they developed Small Business Advisory Committee. The committee is made up of CFOs, controllers, and auditors. They try to implement rules so it would be fair for small companies. ...
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This note was uploaded on 04/24/2008 for the course MAN 101 taught by Professor N/a during the Fall '07 term at Bay State.
- Fall '07