Chapter 15

Question 1

Ratio that measures the number of times the company collects the average accounts receivable balance in a year

Answer 1

Accounts Receivable Turnover Ratio

Question 2

Ratio that tells if the entity can pay all its current liabilities if they became due immediately

Answer 2

Acid-Test Ratio

Question 3

Required by the SEC, provides information about company’s financial condition

Answer 3

Annual Report

Question 4

Measures how efficiently a business uses it average total assets to generate sales

Answer 4

Asset Turnover Ratio

Question 5

Practice of comparing a company with other leading companies

Answer 5

Benchmark

Question 6

Measure of a company’s ability to pay current liabilities from cash and cash equivalents

Answer 6

Cash Ratio

Question 7

Financial statement that reports only percentages

Answer 7

Common-Size Statement

Question 8

Measure’s the company’s ability to pay current liabilities from current assets

Answer 8

Current Ratio

Question 9

Measures the average number of days that inventory is held by a company

Answer 9

Days’ Sales in Inventory

Question 10

Ratio that tells how many days it takes to collect the average level of accounts receivable

Answer 10

Days’ Sales in Receivables

Question 11

Shows the proportion of assets financed with debt

Answer 11

Debt Ratio

Question 12

Ratio that measures the proportion of total liabilities relative to total equity

Answer 12

Debt to Equity Ratio

Question 13

Ratio of dividends declared per common share relative to the earnings per share of the company

Answer 13

Dividend Payout

Question 14

Measures the percentage of a stock’s market value that is returned annually as dividends to stockholders

Answer 14

Dividend Yield

Question 15

Bias one sees from comparing numbers in absolute (dollars) rather than relative (percentage) terms

Answer 15

Dollar Value Bias

Question 16

Amount of a company’s net income for each share of its outstanding common stock

Answer 16

Earnings per Share

Question 17

Measures the profitability of each sales dollar above the cost of goods sold

Answer 17

Gross Profit Percentage

Question 18

Study of percent change in comparative financial statements

Answer 18

Horizontal Analysis

Question 19

Measures the number of times a company sells its average level of merchandise inventory during a period

Answer 19

Inventory Turnover

Question 20

Section of the annual report that is intended to help investors understand the results of operations and the financial condition of the company

Answer 20

Management’s Discussion and Analysis

Question 21

Measures the values the the stock market place on $1 of a company’s earnings

Answer 21

Price/Earnings Ratio

Question 22

Profitability measure that shows how much net income is earned on every dollar of net sales

Answer 22

Profit Margin Ratio

Question 23

Shows relationship between net income available to common stockholders and their average common equity invested in the company

Answer 23

Rate of Return on Common Stockholders’ Equity

Question 24

Ratio that measures the success a company has in using its assets to earn income

Answer 24

Rate of Return on Total Assets

Question 25

Evaluates a business’ ability to pay interest expense

Answer 25

Times-Interest-Earned Ratio

Question 26

Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business

Answer 26

Trading on the Equity

Question 27

Form of horizontal analysis where percentages are computed by selecting a base period of 100% and expressing amounts for following periods as a percentage of the base period amount

Answer 27

Trend Analysis

Question 28

Analysis of financial statements that reveals the relationship of each statement item to it base amount of 100%

Answer 28

Vertical Analysis

Question 29

Measure of a business’ ability to meet its short-term obligations with its current assets

Answer 29

Working Capital