Ch 13 Flashcards
Vertical Analysis
Comparison of various financial statement items within a single period with use of common size statements
Ex. Percentage of inventory relative to total assets for the year
Horizontal Analysis
Comparison of financial statement over series of years
Percentage change btw years
Gross profit ratio
Gross profit ratio = gross profit/net sales
Profit margin ratio, what does it measure?
Profit margin ratio = net income/net sales
Measures management’s ability to control expenses
Liquidity
Nearness to cash of assets and liabilities,
Ability to pay debts as they come due
Acid test AKA Quick ratio? quick assets?
Stricter test of liquidity than current ratio, excludes
Inventory and prepayments from numerator
Quick ratio = quick assets/current liabilities
Quick assets = cash + marketable securities + current receivables
Whats a good number for quick ratio?
1 or higher
Cash flow from operations to current liabilities ratio
Cash flow from operations to current liabilities ratio
= net cash from operating activities/avg. current liabilities
Measures ability to pay current debts from operating cash flows
Accounts receivable turnover ratio
Measure of number of times accounts receivable
collected in period
A/R turnover ratio = net credit sales/avg A/R
Number of days sales in receivables
Measure of avg. age of A/R
days sales in receivables = # days period/A/R turnover
Inventory turnover ratio
Measure of # of times inventory is sold during period
Number of days sales in inventory
Measure of how long it takes to sell inventory
Cash to Cash operating cycle
Length of time from purchase of inventory
To collection on receivable from sale
Name 5 ratios that asses liquidity?
Current Quick Cash from operations and liabilities A/R turnover Inventory turnover
Solvency
Ability of company to remain in business over Longterm
Asses if company can handle Longterm and short term
Obligations
Times interest earned ratio
Income statement measure of ability of company
To meet its interest payments
Debt service coverage ratio
Statement of cash flows measure of ability of company
To meet interest and principal payments
Cash flow from operations and capital expenditures ratio
Measure of ability of company to finance Longterm asset acquisitions with cash from operations
Name 4 ratios that measure a company’s solvency?
Debt to equity, times interest earned, debt service coverage, cash flow from operations to capital expenditures
Profitability
How well management is using company resources
To earn a return on funds invested by various groups
Return on assets ratio
Measure of company’s success in earning a return for
All providers of capital
Return on sales ratio
Variation of profit margin ratio
Measures earnings before payments to creditors
Asset turnover ratio
Relationship btw net. Sales and average total assets
Return on common stockholders equity
Measure of company’s success on earning a return for common stockholders
Leverage
Use of borrowed funds and amounts contributed by
Preferred stockholders to earn an overall return
Higher than the cost of these funds
Earnings per share (EPS)
Company’s bottom line stated on per share basis
P/E ratio
Relationship btw company’s performance according to its income statement and performance in the stock market
Dividend payout ratio
Percentage of earnings paid out as dividends
Dividend yield ratio
Relationship between dividends and market price of stock
The multiplication of which 2 ratios yields the return on assets ratio?
Return on sales and asset turnover
Which of the following is an indication that a company successfully employed leverage?
Return on common stockholders equity exceeds return on assets
Discontinued operations
Line item on income statement to reflect gains or losses
From disposal of segment of business as well as any
Net income or loss from operating that segment
Extraordinary item
Line item on income statement to reflect any gains
Or losses that arise from event that’s unusual in nature
And infrequent in occurrence
