Chapter 13 Terms Flashcards
Liquidity and Efficiency
ability to meet short-term obligation and efficiency generate revenue
Solvency
ability to meet long-term obligations and generate future revenue
Profitability
ability to provide financial rewards to attract and retain financing
Market Prospects
ability to generate positive market expectations
Financial Reporting
The communication of financial information useful for making investments, credit, and other business decisions.
Comparative Financial Statements
Shows financial amounts in side-by-side columns on a single statement
Horizontal analysis
comparison of financial condition and performance over time
Vertical analysis
comparison of financial conditions and performance to a base amount
Ratio analysis
measurement of key relation between financial statement items
Dollar change =
analysis period amount - base period amount
Percent change (%) =
analysis period amount - base period amount / base period amount x 100
Trend percent (%) =
analysis period amount / base period amount (base year) x 100
Common-size financial statement
shows changes in the relative importance of each financial statement item
Common size percent =
analysis amount / base period amount (total assets) x 100
Current Ratio =
current assets / current liabilities (L&E)
Acid-test Ratio =
cash + short-term investments + current receivables / current liabilities (L&E)
Accounts receivable turnover =
net sales / average account receivable (L&E)
Inventory turnover =
cost of goods sold / average inventory (L&E)
Day’s sales uncollected =
accounts receivables / net sales x 365 (L&E)
Day’s sales in inventory =
ending inventory / cost of goods sold x 365 (L&E)
Total asset turnover =
Net sales / average total assets (L&E)
Debt-to-equity ratio =
total liabilities / total equity (S)
Times interest earned =
income before interest and tax expense / interest expense (S)
Gross margin ratio =
net sales - cost of goods sold / net sales (P)
Profit margin =
net income / net sales (P)
Return on total assets =
net income / average total assets (P)
Return on equity =
net income / average total equity (P)
Price-earning ratio =
market price per common share / earning per share (MP)
Dividend yield =
annual cash dividends per share / market price per share (MP)
