1. Shareholders Equity

• Firms residual interest or claim.
• It includes:
• Amounts initially contributed by shareholders for an interest in a firm.
• Cumulative net income in excess of dividends declared.
• Shareholders' equity effects the recognition or valuation of certain
assets or liabilities.
• Treasury stock.

2. Analyzing Net Income

Rate of Return: ROA ROE= margin, turnover, leverage
Alternative Computations:EPS, common size, % change.

3. Which of the following might an analyst not want to eliminate from
   past earnings when using past earnings to forecast future earnings?
   a. nonrecurring gains from the sale of assets.
   b. unusual asset impairment charges.
   c. nonrecurring restructuring charges.
   d. revenue from the sale of inventory.

D

4. Which factor does not explain differences or changes in ROA?
   a. Operating leverage
   b. Cyclicality of sales
   c. Product life cycle
   d. Financial leverage

D

5. Which of the following industries would you expect to have, on
   average, high asset turnover and low profit margin?
   a. Hotels
   b. Grocery stores
   c. Utilities
   d. Oil and Gas extraction

B

6. Accounts Payable Turnover

COGS/ average A/P

7. What are current assets?

Current assets include cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.

8. What are current liabilities?

are a company's debts or obligations that are due within one year, appearing on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.

9. Short-Term Liquidity Risk

• Measures a firm's ability to generate
sufficient cash to supply operating working
capital needs and to service debts.
an arise from
the following:
- Untimed cash inflows and outflows.
- High Degree of long-term leverage.
Use Current and Quick Ratio
Working capital activity ratios: Rate of activity
measures used to study cash-generating ability of
operations and short-term liquidity risk of a firm are:
- Accounts Receivable Turnover
- Inventory Turnover
- Accounts Payable Turnover

10. Long term solvency

Examines a firm's ability to make interest and
principal payments on long-term debt and
similar obligations.Three measures used to examining long-term
solvency risk are:
Debt ratios
Interest coverage ratio
Operating cash flow to total liabilities ratio