chapter 14

Question 1

what are the three types of comparisons

Answer 1

1. intracompany: comparing 2 or mire periods for the same company
2. intercom[any: comparing with competitor in same industry
3. industry

Question 2

what are liquidity ratios

Answer 2

• seeing if a company can pay off its short term laibitlies

Question 3

what are the liquidity ratios

Answer 3

working capital
current ratio
receivables turnover
inventory turniver
average collection
days in inventory

Question 4

what is working capital

Answer 4

its good for comparing one company

Question 5

what is the current ratio

Answer 5

better for comparing two companies vs the working capital
higher= better, more assets than liabiktie s

Question 6

what is the inventory turnover

Answer 6

how many times inventory has been sold
higher ratio= more inventory was sold

Question 7

what is days in inventory

Answer 7

number of days on average that it takes to sell the inventory
- lower= better

Question 8

what is receivables turnover

Answer 8

how many times we collected our receivables
higher = better
use credit sales and if u dont have that use sales
use gross ar and if not use net recievables

Question 9

what is average collection period

Answer 9

how many days it takes to collect our receivables
- lower= better

Question 10

what are solvency ratios

Answer 10

measure if a company can pay off its current and non current liabilities

Question 11

what are the solvency ratios

Answer 11

debt to total asstes
time interest earned
free cash flow

Question 12

what is the debt to total assets ratio

Answer 12

measure how much debt we have
lower= better
percentage of assets financed by credits

Question 13

what is times interest earned

Answer 13

can a company meet interest periods
higher= better as there is more net income vs interest expense (more flexibility )

Question 14

what is free cash flow

Answer 14

amount of cash that a company has available to make extra expenditures
HARD to make comparisons because we are looking at dollar amounts
capital expenditures = fixed assets

Question 15

what are the rpofoitbilty ratios

Answer 15

GPM
PM
asset turnover
return on assets
return on SE
basic earnings per share
price earnings
payout ratio
dividend yield

Question 16

what is GPM

Answer 16

companys ability to maintain an adequate selling price above cogs
higher= better

Question 17

what is PM

Answer 17

comparing net income to sales
- higher= better

Question 18

asset turnover

Answer 18

how efficiently a company uses its assets to generate sales
- higher= Better–> using assets well

Question 19

return on assets

Answer 19

looking at profoabilty of assets
- higher= better
net income is higher so profit margin is higher

Question 20

what is return on SE

Answer 20

profit from the SE perspective
higher= better
how much income was generated based on what was invested by the SE

Question 21

what is basic earnings per share

Answer 21

how much net income is available to our SE on a per share basis
- higer= better
HARD TO COMPARE W OTHERS

Question 22

what is price earnings

Answer 22

easier to make comparisons
share price related to the company earnings
no better or worse because the market price changes over time

Question 23

payout ratio

Answer 23

dividends, how a company pays its dividends
what percent did the board decide to distribute as dividends
no good or bad
what are the investors looking for

Question 24

dividend yield

Answer 24

rate of return a SE gets from dividend
looking at market price
no good or bad just depends on investors