CPCU 540 Ch. 3

Question 1

The us of common-size statements to highlight basic relationships among items within a single set of financial statement

Answer 1

Vertical analysis

Question 2

An analysis that identifies patterns in past data and then projects these patterns in to the future

Answer 2

Trend analysis

Question 3

A financial analysis tool used to study the financial condition of an account; two or more data items from accounting records of a company are related to one another and the result is compared to results for prior accounting periods or similar businesses

Answer 3

Ratio anlaysis

Question 4

A financial statement in which amounts are reported as a percentage of a base figure

Answer 4

Common-size statement

Question 5

A comparison of financial statement data across two or more periods

Answer 5

Trend analysis

Question 6

The percentage of net sales remaining after deducting all expenses

Answer 6

Net profit margin

Question 7

A measure of the number of days it takes, on average, for a company to collect its accounts receivable

Answer 7

Days sales outstanding

Question 8

Resources that cannot be expected to be sold or consumed within the business’s normal operating cycle and that are usually considered to be long lived

Answer 8

Fixed assets

Question 9

An efficiency ratio that indicates how quickly inventory is sold, generating either cash (from cash sales) or accounts receivable (from credit sales)

Answer 9

Inventory turnover ratio

Question 10

A profitability ratio that measures the percentage of sales remaining after deducting all expenses that indicates how effective an insurer is at cost control, uses income statement data, and is calculated by dividing net income after taxes by sales

Answer 10

Net profit margin

Question 11

A profitability ratio that shows how well a company has used its resources by comparing net income to the assets invested to generate that income

Answer 11

Return on assets (ROA)

Question 12

A profitability ratio expressed as a percentage by dividing a company’s net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders’ equity, owners’ equity, or policyholders’ surplus

Answer 12

Return on equity (ROE)

Question 13

An analysis of ROA and ROE by breaking them down into their component ratios

Answer 13

DuPont identity

Question 14

The practice of using borrowed money to invest

Answer 14

Leverage

Question 15

A financial ratio that indicates the relationship between the amount of funds supplied by creditors and the funds supplied by the owners of the company

Answer 15

Leverage ratio

Question 16

A liquidity ratio that indicates the company’s ability to meet its short term financial obligations, calculated by dividing current assets by current liabilities

Answer 16

Current ratio

Question 17

A liquidity ratio that provides a measure of a company’s ability to meet its current obligations if it cannot sell its inventory

Answer 17

Acid-test ratio (quick ratio)

Question 18

A leverage ratio that measures the extent to which a company is financed using borrowings rather than its own funds (owners equity)

Answer 18

Debt-to-equity ratio

Question 19

A leverage ratio that shows the extent to which a company’s assets are financed by debt; uses balance sheet data and is calculated by dividing total liabilities by total assets

Answer 19

Debt-to-assets ratio

Question 20

A ratio that emphasizes the efficiency of the company’s use of its assets

Answer 20

Asset turnover

Question 21

A liquidity ratio that provides a measure of a company’s ability to meet its current obligations if it cannot sell its inventory

Answer 21

Quick ratio (acid test ratio)