WileyPLUS Chapter Two
WileyPLUS Chapter Two
Copyright © 2009 John Wiley & Sons, Inc. All rights reserved.
WileyPLUS Chapter Two
SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement and a statement of stockholders' equity. The retained earnings statement presents the factors that changed the retained earnings balance during the period. A statement of stockholders' equity presents the factors that changed stockholders' equity during the period, including those that changed retained earnings. Thus, a statement of stockholders' equity is more inclusive. 4Identify and compute ratios for analyzing a company's liquidity and solvency using a balance sheet. Liquidity ratios, such as the current ratio, measure the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. Solvency ratios, such as the debt to total assets ratio, measure the ability of an enterprise to survive over a long period. 5Use the statement of cash flows to evaluate solvency. Free cash flow indicates a company's ability to generate cash from operations that is sufficient to pay debts, acquire assets, and distribute dividends. 6Explain the meaning of generally accepted accounting principles. Generally accepted accounting principles are a set of rules and practices recognized as a general guide for financial reporting purposes. The basic objective of financial reporting is to provide information that is
Copyright © 2009 John Wiley & Sons, Inc. All rights reserved.
WileyPLUS Chapter Two
SUMMARY OF STUDY OBJECTIVES 1Identify the sections of a classified balance sheet. In a classified balance sheet, companies classify assets as current assets; long-term investments; property, plant, and equipment; and intangibles. They classify liabilities as either current or long-term. A stockholders' equity section shows common stock and retained earnings. 2Identify and compute ratios for analyzing a company's profitability. Profitability ratios, such as earnings per share (EPS), measure aspects of the operating success of a company for a given period of time. 3Explain the relationship between a retained earnings statement and a statement of stockholders' equity. The retained earnings statement presents the factors that changed the retained earnings balance during the period. A statement of stockholders' equity presents the factors that changed stockholders' equity during the period, including those that changed retained earnings. Thus, a statement of stockholders' equity is more inclusive. 4Identify and compute ratios for analyzing a company's liquidity and solvency using a balance sheet. Liquidity ratios, such as the current ratio, measure the short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash. Solvency ratios, such as the debt to total assets ratio, measure the ability of an enterprise to survive over a long period. 5Use the statement of cash flows to evaluate solvency. Free cash flow indicates a company's ability to generate cash from operations that is sufficient to pay debts, acquire assets, and distribute dividends. 6Explain the meaning of generally accepted accounting principles. Generally accepted accounting principles are a set of rules and practices recognized as a general guide for financial reporting purposes. The basic objective of financial reporting is to provide information that is