Chapter_2_EOC

Chapter_2_EOC - Ferris-Wallace EOC Discussion Questions...

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Unformatted text preview: Ferris-Wallace EOC Discussion Questions Q2.1 Accounting Terminology. Describe or define the following terms: • Asset • Liability • Shareholders’ equity • Revenue • Expense Discuss how the five terms relate to one another. Q2.2 Historical Versus Forecasted Financial Statements. Discuss the difference between historical and forecasted (or pro forma) financial statements. How are these different sets of financial statements used by managers and shareholders for decision-making purposes? Q2.3 Accounting Principles. Consider the following accounting principles: • Entity principle • Revenue recognition principle • Matching principle Discuss how these principles relate to one another. Q2.4 Balance Sheet Classifications. Most balance sheets are defined as “classified balance sheets” in that both the assets and liabilities are dichotomized into the two categories of current and non-current. (Note: In certain industries wherein the business operating cycle is longer than one year (e.g., the wine industry, the real estate industry, the financial services industry), classified balance sheets are not required.) Discuss how the balance sheet classifications of current versus non-current convey important information about a firm’s financial condition to managers and shareholders. Q2.5 Key Performance Indicators: The Income Statement. Describe or define the following key performance indicators (KPIs) from the income statement: • Operating revenue • Gross profit • Operating income • Net income Discuss how each of these measures depict a firm’s operating performance. 2-1 Ferris-Wallace EOC Q2.6 Key Performance Indicators: The Statement of Cash Flows. Describe or define the following key performance indicators (KPIs) from the statement of cash flows: • Cash flow from operating activities • Cash flow from investing activities • Cash flow from financing activities Discuss how each of these measures conveys important information about firm performance to managers and shareholders. Q2.7 Return on Shareholders’ Equity. The return on shareholders’ equity ratio can be decomposed into three separate financial ratios – the return on sales, total asset turnover, and financial leverage. Define each ratio and discuss what actions a manager might take to increase a firm’s return on equity. Q2.8 Evaluating Financial Risk. Investment professionals use a variety of financial ratios to evaluate a company’s financial risk. Several popular financial risk ratios include: • Total debt-to-total assets ratio • Interest coverage ratio Define each ratio and discuss what actions a manager might take to improve a firm’s financial riskiness. Q2.9 Managing Operating Revenues. Some corporate executives have reportedly attempted to manage their firm’s operating revenues through such actions as “front-end loading” or “rear-end loading” of operating revenues. Explain what front-end loading and rear-end loading of operating revenues is. Discuss why front-end loading and rear-end loading of operating revenues is....
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This note was uploaded on 04/20/2011 for the course ACC 101 taught by Professor Xyz during the Spring '11 term at Ohio State.

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Chapter_2_EOC - Ferris-Wallace EOC Discussion Questions...

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