Chapter 14

Question 1

3 evaluation information

Answer 1

Liquidity
Solvency
Profitability

Question 2

Liquidity

Answer 2

Ability to convert assets into cash.

To repay short term debit
Loans, Notes

Question 3

Solvency

Answer 3

Long term debit

Bond holders

Question 4

Profitability

Answer 4

Potential for a company’s stock to increase.

Ability to generate earnings

Question 5

3 Analytical Methods for financial statements

Answer 5

Horizontal
Vertical
Common-Sized statements

Question 6

Horizontal Analysis

Answer 6

Increase and decrease comparison over time

Question 7

Vertical Analysis

Answer 7

Within a single year.

Each asset is stated as a percent of total assets.

Each liability and stockholders equity stated as a percent or total.

Question 8

Common-Sized Statement

Answer 8

Compared with another company or the industry averages

Question 9

Quick Ratio
3 Categories

Answer 9

Or Acid Test

1) Cash
2) Marketable Securities or temporary investments
3) Receivables

Quick Assets / Current liabilities

Question 10

Working Capital

Answer 10

Current Assets
Subtract
Current Liabilities

Question 11

Current Ratio

Answer 11

Current Assets
Divided by
Current Liabilities

Used to determine a company’s ability to pay current liabilities

Question 12

Marketable Securities

Answer 12

Temporary Investments

Question 13

Accounts Receivable Turnover

Answer 13

The speed a company collects on its accounts Revivable.

A/R Turnover is…
Sales / Average A/R

To find the average A/R
Beginning A/R balance + Ending A/R Balance
Divided by 2

Question 14

Average Daily Sales

Answer 14

Sales divided by 365

Question 15

Inventory Turnover

Answer 15

COGS / Average Inventory

Find average inventory (Beginning Inventory + Ending Inventory / 2)

Question 16

Ratio Fixed Assets to Long Term Assets

Answer 16

Net PPE / long term liabilities

Question 17

Ratio of
liabilities to Stockholders equity

Answer 17

Total Liabilities / Stockholders Equity

Question 18

Times Interest Earned

Answer 18

Sum of pre tax income / interest expense

AKA “Coverage Ratio”

Question 19

EBIT

Answer 19

Earnings before internet & taces

Question 20

Asset Turnover
Ratio

Answer 20

Sales / Average Total Assets (excluding long-term Assets)

Finding Average Assets excluding long-term… add both years and divide by 2.

(so include PPE for both years before dividing by 2)

Question 21

Return on total assets

Answer 21

Sun net income + interest expense/ average total assets

Question 22

The “Coverage Ratio”

Answer 22

AKA
Times interest ratio

Measures risk for interest payment’s