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Cheat sheet for RM's and CA's from Module 1
STATEMENT TYPE / BY / COMFORT LEVEL
Company prepared |
Internal accountant |
Lowest level |
Compiliation |
3rd party preparer |
More comfort |
Review |
CPA |
Higher level of comfort |
Audit |
CPA |
Highest level of comfort |
SET OF FINANCIAL STATEMENTS:
Balance sheet |
Shows assets owned, liabilities owed & shareholder equity at a point in time |
Income statement |
Summarizes operating transactions for a period of time |
Statement of Cash flows |
Shows cash inflows & outflows for period of time (operating, investment or financing) |
Flash Report (optional) |
1 page report showing key performance indicators |
GOAL OF ACCOUNTING SYSTEM
Process all transactions completely & effectively |
Report transactions accurately, reliably, in timely manner |
Comply with laws and regulations |
Faithful representation |
Verifiable |
Comparable with prior periods |
Relevant |
Understandable |
Timely |
TRANSACTION CLASSIFICATION
DEBIT |
CREDIT |
Assets |
Liabilities |
Expenses |
Income / revenue |
Distributions / owners drawing |
Capital injection |
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ACCOUNTING METHODS
GAAP - generally accepted accounting principles (accrual basis, current regulations, subject to change) |
Accrual basis - recognizes business revenue and matching transactions when they happen |
Cash basis (not Gaap)- recognizes revenue and expenses when paid |
LIQUIDITY RATIOS
Current Ratio |
Current assets / current liabilities |
Ability to meet short term obligations |
Quick Ratio |
CA - inventory / ciurrent liabilities |
Ability to meet short term obligations with most liquid assets |
ACTIVITY RATIOS
A/R Days |
A/R / Sales * # days in period |
Average collection period for sales |
Inventory Days |
Inv / COGS * # days in period |
Average days company holds inventory before selling it. |
A/P Days |
AP / COGS * # days in period |
Average number of days of credit company shows |
Working capital cycle days |
Days in A/R + Days in Inv - Days in A/P |
# days to convert working capital into revenue |
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LEVERAGE RATIOS
Debt to Equity Ratio |
Total Liabilities / Total Equity |
Measure degree company is financing oiperaitons with debt rather than equity |
Interest Coverage Ratio |
EBIT / interest |
Ability to meet ingterest obligations. |
Debt Ratio |
Total liabilities / Total assets |
Extent to swhich company uses external financing to finace assets |
Funded debt to EBITDA Ratio |
Funded Debt / EBITDA |
Ability to meet funded obligations before covering tax, depreciation, and interst expense |
PROFITABILITY RATIOS
Gross profit margin |
(Sales - variable COGS - fixed COGS) / Sales |
Margin after paying direct costs of doing business (labor, materials and direct production costs) |
Operating profit margin |
Gross profit - SG&A expenses |
Margin after paying SG&A expenses |
Pretax profit margin |
Operating profit - interest +/- other income or expenses |
Profit margin after paying all expenses of business (except income taxes) |
EBITDA Margin |
NI + depr + Int + taxes / Sales |
Margin before depr, interest, and taxes |
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