Chapter 3 Flashcards
Financial Statements and Financial Managers
Financial Statements provided from the Accounting group are used and analyzed to obtain the best information possible
Comparing Financial Statements
analyzing financial statements by comparing them to other companies
Financial Ratios
used to analyze differing pieces of financial information and their impact on the business
liquidity
short term solvency
financial leverage
long term solvency
liquidity ratios
measure a company’s ability to pay its bills over the short term and focus primarily on current assets and current liabilities
Long term Insolvency
these address the firm’s ability to pay its long term debts, or financial leverage
Asset Management (Turnover) Ratios
measure the efficiency in which a company uses their assets
Total Asset Turnover
Measures the dollar value is assets that leads to a specific dollar value in sales
Profitability Measures
measure how efficiently a firm uses its assets and manages its operations
Market Value Measures
these values are not generally contained in Income Statements, and utilize the market price per share of stock
Enterprise Value
an estimate of the market value of the company’s operating assets
Dupont Identity
the difference between ROA and ROE is a reflection of the use of debt financing, also know as financial leverage
Internal and Sustainable Growth
a firm’s net income is broken down into cash dividends paid to stockholders and the remainder is deposited into retained earnings
ROA/ROE and Growth
this requires a company to obtain more funding
Internal
refers to what a firm earns and is brought back into the firm
External
refers to funds raised by borrowing or selling stock
Determinants of Growth
the same items that impact ROE also impact growth
Profit Margin
an increase in profit margin leads to the firm’s ability to generate funds internally and increase growth
Total Asset Turnover
an increase in total assets increase form’s financial leverage, which is an increase in debt financing available
Dividend Policy
a decrease in the retention ratio, which increases internal growth
Time Trend Analysis
this involves using different ratios and comparing the rise and falls of the particular ratio over a set period of time
Peer Group Analysis
the process of identifying two firms which are in similar industries, have similar assets, an compete in the same markets
Standard Industrial Classification Codes (SIC)
this is a U.S. government established metric for statistical reporting purposes of companies
