3. Evaluation of Financial Performance Flashcards
What do Liquidity Ratios Indicate
a firm’s ability to meet its short-term financial obligations.
What do Asset management ratios Indicate
how efficiently a firm is using its assets to generate sales.
What do financial leverage management ratios indicate
a firm’s capacity to meet shortand long-term debt obligations.
What do profitability ratios measure
how effectively a firm’s management generates profits.
What do market-based ratios reflect
they reflect the financial market’s assessment of a company ’ s performance.
What do Dividend policy ratios indicate
the dividend practices of a firm.
Common-size financial statements express financial items as % or $
%
what does Trend analysis evaluates
a firm’s performance over time
What does comparative analysis evaluates
a firm’s performance relative to other firms.
explain trend and comparitive analysis and thier differences
Trend analysis evaluates a firm ’ s performance over time, whereas comparative analysis evaluates a firm ’ s performance relative to other firms.
what does financial analysis assit in
Checking the Firm has:
a reasonable accounts receivable collection period
an efficient inventory management policy
sufficient property, plant, and equipment
an efficient cost structure
sufficient profits;
and an adequate capital structure
who utilises financial analysis
financial managers: aid in the shareholder wealth maximization goal
credit managers: when deciding whether to extend credit. Security analysts: to help assess the investment worth of different securities.
Bankers: when deciding whether to grant loans.
Unions: refer to financial ratios when evaluating the bargaining positions of certain employers.
students and other job hunters: may perform financial analyses of potential employers to determine career opportunities.
what are the 6 Different Groups of Financial Ratios
Liquidity ratios: indicate a firm ’ s ability to meet short-term financial obligations.
Asset management ratios indicate how efficiently a firm is using its assets to generate sales.
Financial leverage management ratios indicate a firm ’ s capacity to meet shortand long-term debt obligations.
Profitability ratios measure how effectively a firm ’ s management generates profits on sales, assets
Market-based ratios measure the financial market s evaluation of a company
Dividend policy ratios indicate the dividend practices of a firm.
what does the Balance Sheet Show
information on assets , liabilities , and stockholders ’ equity. The Balance Sheet provide a “ snapshot ” view of the firm ’ s financial health
liabilities: are amounts the firm owes its creditors
Assets: cash, marketable securities, account receivables, inventories, plant and equipment (less depreciaon)
stockholders ’ equity: (also termed net worth or owners ’ equity ) is the difference between total assets and total liabilities.
what does the Income Statment Include
The income statement includes
The cost of sales
operating expenses
interest expenses
and taxes are deducted from the revenues generated,
