Chapter 13

Question 1

Are conducted to help financial statement users recognize important financial changes that unfold over time. We might calculate the change in gross profit from one year to the next.

Answer 1

Horizontal Trend Analyses

Question 2

Focus on important relationships between items on the same financial statement.

Answer 2

Vertical Analyses or Common Size Analyses

Question 3

Conducted to understand relationships among various items reported in one or more of the financial statements.

Answer 3

Ratio Analyses

Question 4

Relate to the company’s performance in the current period—in particular, the company’s ability to generate income.

Answer 4

Profitability Ratios

Question 5

Relate to the company’s short-term survival—in particular, the company’s ability to use current assets to repay liabilities as they become due.

Answer 5

Liquidity Ratios

Question 6

Relate to the company’s long-run survival—in particular, the company’s ability to repay lenders when debt matures and to make the required interest payments prior to the date of maturity.

Answer 6

Solvency Ratios

Question 7

Net Profit Margin, Gross Profit Percentage, Fixed Asset Turnover, Earnings Per Share, Price/Earnings Ratio and Return on Equity

Answer 7

Profitability Ratios

Question 8

Receivables Turnover Ratio, Inventory Turnover Ratio and Current Ratio

Answer 8

Liquidity Ratios

Question 9

Debt to Assets Ratio and Times Interest Earned

Answer 9

Solvency Ratios