Chapter 3 Textbook/slides Flashcards
A standardized financial statement presenting all items in percentage terms is known as
Common-Size Statement
When balance sheet items are shown as a percentage of assets and income statement items are shown as a percentage of sales this is known as a
Common-Size Statement
What is the cash percentage of $165 in assets compared to $3,373 in total assets?
4.9%
T/F- the totals of the common-size statements may not all check to 100% due to rounding errors
True
What is another way to avoid problems involved in comparing companies of different sizes by calculating and comparing
Financial Ratios
Relationships determined from a firm’s financial information and used for comparison purposes are recognized as
Financial Ratios
What are the 5 traditional grouped categories of financial ratios?
1) Short-term solvency, or liquidity, ratios
2) Long-term solvency, or financial leverage ratios
3) Asset Management, or turnover ratios
4) Profitability Ratios
5) Market Value Ratios
What are the 3 liquidity ratios?
Current Ratio
Quick Ratio
Cash Ratio
Short term solvency ratios as a group are intended to provide information about a firm’s liquidity, and these ratios are sometimes called?
Liquidity Measures
What is the primary concern of a company with solvency in the short-term?
The firm’s ability to pay its bills under the short run without undue stress
T/F- Liquidity ratios are interesting to short-term creditors b/c financial managers are constantly working with banks and other short-term lenders
True
What is one advantages of looking at current assets and liabilities?
Their book value and market values are likely to be similar
What is the current ratio formula?
Current Assets DIVIDED BY Current Liabilities
What kind of test is the current ratio test?
Short-term liquidity
To a creditor, particularly a short-term creditor such as supplier, the HIGHER OR LOWER current ratio results in the better
HIGHER
Borrowing money in the long term to raise money, increase cash in the short run and an increase in long-term debt, bu have no effect on current liabilities. This would raise or lower current ratio?
Raise
What is the formula for the Quick Ratio test?
Current Liabilities
What is often the least current asset?
Inventory
What is the formula for cash ratio?
Current Liabilities
What type of ratios are intended to address the firm’s long-run ability to meet its obligations, or more generally, its financial leverage?
Long term Solvency ratios
What are the 5 financial leverage ratios?
Total Debt Ratio
Debt- Equity Ratio
Equity Multiplier
Times Interest Earned
Cash Coverage
