CPCU 540 Ch. 3 Flashcards
The us of common-size statements to highlight basic relationships among items within a single set of financial statement
Vertical analysis
An analysis that identifies patterns in past data and then projects these patterns in to the future
Trend analysis
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
Ratio anlaysis
A financial statement in which amounts are reported as a percentage of a base figure
Common-size statement
A comparison of financial statement data across two or more periods
Trend analysis
The percentage of net sales remaining after deducting all expenses
Net profit margin
A measure of the number of days it takes, on average, for a company to collect its accounts receivable
Days sales outstanding
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
Fixed assets
An efficiency ratio that indicates how quickly inventory is sold, generating either cash (from cash sales) or accounts receivable (from credit sales)
Inventory turnover ratio
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
Net profit margin
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
Return on assets (ROA)
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
Return on equity (ROE)
An analysis of ROA and ROE by breaking them down into their component ratios
DuPont identity
The practice of using borrowed money to invest
Leverage
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
Leverage ratio
A liquidity ratio that indicates the company’s ability to meet its short term financial obligations, calculated by dividing current assets by current liabilities
Current ratio
A liquidity ratio that provides a measure of a company’s ability to meet its current obligations if it cannot sell its inventory
Acid-test ratio (quick ratio)
A leverage ratio that measures the extent to which a company is financed using borrowings rather than its own funds (owners equity)
Debt-to-equity ratio
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
Debt-to-assets ratio
A ratio that emphasizes the efficiency of the company’s use of its assets
Asset turnover
A liquidity ratio that provides a measure of a company’s ability to meet its current obligations if it cannot sell its inventory
Quick ratio (acid test ratio)
