3.5 Profitability and Liquidity Ratio Analysis Flashcards

1
Q

Ratio analysis

A

Financial analysis tool used in the interpretation and assessment of a firm’s financial statements

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2
Q

Profitability ratios

A

Ratios that assess the performance of a firm in terms of its profit generating ability

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3
Q

Gross Profit Margin

A

Profitability ratio that measures how much gross profit is generated as a percentage of the sales revenue

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4
Q

Net Profit Margin

A

Profitability ratio that measures how much net profit is generated as a percentage of the sales revenue

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5
Q

Efficiency ratios

A

Ratios that assess how well a firm internally utilizes its assets and liabilities

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6
Q

Return on capital employed

A

Efficiency ratio that assesses the returns a firm is making from its capital employed

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7
Q

Capital employed

A

The total capital invested in the business

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8
Q

Liquidity ratios

A

Ratios that measure the ability of a firm to pay off its short-term debt obligations

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9
Q

Current Ratio

A

Liquidity ratio that indicates a business’s ability to pay off its current liabilities in comparison to its current assets

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10
Q

Acid test (quick ratio)

A

Liquidity ratio that subtracts stock from the current assets to more accurately determine a business’s ability to pay off current liabilities with the most liquid assets

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