Chapter 3 - Fundamental Interpretations Made from Financial Statement Data Flashcards
What is the acid-test ratio?
The ratio of the sum of cash (including temporary cash investments) and accounts receivable to current liabilities. A primary measure of a firm’s liquidity.
What is asset turnover?
The quotient of sales divided by average assets for the year or other fiscal period.
What does COD stand for?
Cash on delivery, or collect on delivery.
What is credit risk?
The risk that an entity to which credit has been extended will not pay the amount due on the date set for payment.
What is the current ratio?
The ratio of current assets to current liabilities. A primary measure of a firm’s liquidity.
What is the DuPont model?
An expansion of the return on investment calculation to margin × turnover.
What is interest?
The income or expense from investing or borrowing money.
What is the interest rate?
The percentage amount used, together with principal and time, to calculate interest.
What does liquidity refer to?
Refers to a firm’s ability to meet its current financial obligations.
What is margin?
The percentage of net income to net sales. It can also refer to the amount of gross profit, operating income, or net income.
What is principal?
The amount of money invested or borrowed.
What is rate of return?
A percentage calculated by dividing the amount of return on an investment for a period of time by the average amount invested for the period.
What is return on assets (ROA)?
A synonym for return on investment (ROI).
What is return on equity (ROE)?
The percentage of net income divided by average stockholders’ equity for the fiscal period in which the net income was earned.
What is return on investment (ROI)?
The rate of return on an investment; frequently referred to as ROI.
What is risk?
A concept that describes the range of possible outcomes from an action. The greater the range of possible outcomes, the greater the risk.
What is a semilogarithmic graph?
A graph format in which the vertical axis is a logarithmic scale.
What is trend analysis?
Evaluation of the trend of data over time.
What is turnover?
The quotient of sales divided by the average assets for the year or some other fiscal period.
What is working capital?
The difference between current assets and current liabilities.
