Chapter 4 Flashcards
liquid asset
an asset that can be converted to cash quickly without having to reduce the asset’s price very much
liquidity ratios
ratios that show the relationship of a firm’s cash and other current assets to its current liabilities
current ratio
current assets divided by current liabilities. the extent to which current liabilities are covered by those assets expected to be converted to cash in the near future
asset management ratios
a set of ratios that measure how effectively a firm is managing its assets
days sales outstanding ratio
indicated the average length of time the firm must wait after making a sale before it receives cash
debt management ratios
a set of ratios that measure how effectively a firm manages its debt
times interest earned ratio
a measure of the firm’s ability to meet its annual interest payments
profitability ratios
a group of ratios that show the combined effects of liquidity, asset management, and debt on operating results
operating margin
measures operating income/EBIT per dollar of sales
profit margin
measures net income per dollar of sales
return on common equity
measures the rate of return on common stockholders’ investment
return on invested capital
measures the total return that the company has provided for its investors
basic earning power ratio
indicates the ability of the firm’s assets to generate operating income
market value ratios
ratios that relate the firm’s stock price to its earnings and book value per share
price/earnings ratio
the ratio of the price per share to earnings per share
