Chapter 18 vocab

Question 1

accounts receivable turnover

Answer 1

measure of the liquidity of accounts receivable; computed by dividing net credit sales by average net accounts receivable.

Question 2

acid-test ratio

Answer 2

dividing sum of cash, short term investments, and net accounts receivable by current liabilities

Question 3

asset turnover

Answer 3

computed by dividing net sales by average total assets.

Question 4

current ratio

Answer 4

current assets/current liabilities

Question 5

debt to assets ratio

Answer 5

total liabilities/total assets

Question 6

discontinued operations

Answer 6

The disposal of a significant component of a business.

Question 7

earnings per share

Answer 7

net income - preferred dividends/ weighted-average common shares outstanding

Question 8

horizontal analysis

Answer 8

a technique for evaluating a series of financial statement data over a period of time to determine increase/decrease

Question 9

inventory turnover

Answer 9

cost of goods sold/average inventory

Question 10

liquidity ratios

Answer 10

Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

Question 11

other comprehensive income

Answer 11

Includes all changes in stockholders’ equity during a period except those resulting from investments by stockholders and distributions to stockholders.

Question 12

payout ratio

Answer 12

computed by dividing cash dividends declared on common stock by net income.

Question 13

price-earnings ratio

Answer 13

computed by dividing the market price per share by earnings per share.

Question 14

profit margin

Answer 14

computed by dividing net income by net sales.

Question 15

profitability ratios

Answer 15

Measures of the income or operating success of a company for a given period of time.

Question 16

ratio

Answer 16

The relationship may be expressed either as a percentage, a rate, or a simple proportion.

Question 17

ratio analysis

Answer 17

A technique for evaluating financial statements that expresses the relationship between selected financial statement data.

Question 18

return on assets

Answer 18

computed by dividing net income by average total assets.

Question 19

return on common stockholders equity

Answer 19

computed by dividing net income minus preferred dividends (if any) by average common stockholders’ equity.

Question 20

solvency ratio

Answer 20

Measures of the ability of the company to survive over a long period of time.

Question 21

sustainable income

Answer 21

The most likely level of income to be obtained by a company in the future.

Question 22

times interest earned

Answer 22

computed by dividing the sum of net income, interest expense, and income tax expense by interest expense.

Question 23

trading on the equity

Answer 23

Borrowing money at a lower rate of interest than can be earned by using the borrowed money.

Question 24

vertical anaylsis

Answer 24

A technique for evaluating financial statement data that expresses each item within a financial statement as a percentage of a base amount.