Ch 23 - financial statement analysis

Question 1

accounts receivable turnover

Answer 1

1. measure of the speed with which sales on account are collected
2. ratio of net credit sales to average receivables

Question 2

acid-test ratio

Answer 2

1. measure of immediate liquidity

2. ratio of quick assets to current liabilities

Question 3

asset turnover

Answer 3

1. measure of effective use of assets in making sales

2. ratio of net sales to total assets

Question 4

average collection period

Answer 4

1. ratio of 365 days to the accounts receivable turnover

2. aka number of days’ sales in receivables

Question 5

common-size statements

Answer 5

financial statements with items expressed as percentages of a base amount

Question 6

comparative statements

Answer 6

financial statements presented side by side for two or more years

Question 7

current ratio

Answer 7

1. measure of the ability of a business to pay its current debts using current assets
2. ratio of current assets to current liabilities

Question 8

horizontal analysis

Answer 8

computing the % change for individual items in financial statements from year to year

Question 9

industry averages

Answer 9

financial ratios and percentages reflecting averages for similar companies

Question 10

leveraged buyout

Answer 10

purchasing a business by acquiring the stock and obligating the business to pay the debt incurred

Question 11

liquidity

Answer 11

ability of a business to pay its debts when due

Question 12

price-earnings ratio

Answer 12

ratio of the current market value of common stock to earnings per share of that stock

Question 13

quick assets

Answer 13

cash, receivables and marketable securities

Question 14

ratio analysis

Answer 14

computing the relationship between various items in the financial statements

Question 15

return on common stockholders’ equity

Answer 15

1. measure of how well the corp is making profit for its shareholders
2. ratio of net income available for common stockholders to common stockholders’ equity

Question 16

total equities

Answer 16

sum of a corp’s liabilities and stockholders’ equity

Question 17

trend analysis

Answer 17

comparing selected ratios and percentages over period of time

Question 18

vertical analysis

Answer 18

computing the relationship between each item on a financial statement to some base amount on the statement

Question 19

working capital

Answer 19

measure of the ability of a company to meet