Chapter 6: Introduction to Financial Statement Analysis Flashcards
Sales divided by assets and is interpreted as the number of dollars in sales is generated by each dollar of assets
Asset Turnover
Assets divided by equity and is interpreted as the number of dollars of assets acquired for each dollar invested by stockholders
Assets-to-equity Ratio
Shows the average number of days that elapse between sale and cash collection
Average Collection Period
Cash from operations divided by expenditures for fixed asset additions and acquisitions of new businesses
Cash Flow Adequacy Ratio
A financial analysis tool that indicates the interest payment ability of an entity
Cash Times Interest Earned Ratio
All amounts for a given year being shown as a percentage of that denominator for the year
Common-size Financial Statements
A comparison of current assets (cash, receivables, and inventory) with current liabilities. It is computed by dividing total current assets by total current liabilities
Current Ratio
A frequently used measure of leverage, computed as total liabilities divided by total assets
Debt Ratio
Total liabilities divided by total equity and is interpreted as the number of dollars of borrowing for each dollar of investment
Debt-to-Equity Ratio
A systematic approach to identifying general factors causing ROE to deviate from normal
DuPont Framework
Relationships between financial statement amounts
Financial Ratios
Areas in which additional data must be gathered, including details of significant transactions, market share information, competitors’ plans, and customer demand forecasts
Financial Statement Analysis
Sales divided by average fixed assets and is interpreted as the number of dollars in sales is generated by each dollar of fixed assets
Fixed Asset Turnover
Borrowing that allows a company to purchase more assets than its stockholders are able to pay for through their own investment
Leverage
A company’s liability to pay its debts in the short run
Liquidity
The profitability of each dollar in sales
Margin
Calculated by dividing average inventory by average daily cost of goods sold and is interpreted as the average number of days of sales that can be made using only the supply of inventory on hand
Number of Days’ Sales in Inventories
An equity valuation multiple. Maket price per share divided by annual earnings per share
Price-earnings ratio
Net income divided by total assets and is the number of pennies of net income generated by each dollar of assets
Return on Assets
The overall measure of the performance of a company
Return on Equity
Net income divided by sales and is interpreted as the number of pennies in profit generated from each dollar of sales
Return on Sales
The degree to which assets are used to generate sales
Turnover
