Chapter 12

Question 1

Trend analysis

Answer 1

Information from multiple periods to look for patterns

Question 2

EBITDAR

Answer 2

Earnings before interest, tax, depreciation, acquisition and restructuring

Question 3

Cross sectional analysis

Answer 3

Compare data from one company to another in the same industry

Question 4

Common size analysis

Answer 4

Involves converting dollar amounts into percentages of a specific base amount

Question 5

5 common categories of ratios

Answer 5

Liquidity 
Activity 
Solvency 
Profitability 
Equity analysis

Question 6

Liquidity ratios 2

Answer 6

Used to see ability to meet obligations in the near future

Current and quick ratios

Question 7

Activity ratios 6

Answer 7

How efficiently a company manages operations

AR turnover, average collection period, inventory turnover, days to sell inventory, AP turnover and AP payment period

Question 8

Solvency ratios 4

Answer 8

Company’s ability to meet long term obligations

Debt to equity, net debt as a percent of total capitalization, interest coverage, cash flows to total liabilities

Question 9

Profitability ratios 4

Answer 9

Ability to generate profits

Gross profit margin, net profit margin, return on equity, return on assets

Question 10

Equity analysis ratios 5

Answer 10

Assess shareholder returns

Basic earnings per share, price per earnings, dividend payout, dividend yield, net free cash flow