FHF 13 Assessing Financial Condition Flashcards
using financial statement data to make judgments about a business’s financial condition. most important is ratio analysis.
Financial statement analysis
return on total assets
Net income divided by the book value of total assets
current ratio
Total current assets divided by total current liabilities
days cash on hand (DCOH)
number of days it would take to run out of cash
debt-to-capitalization ratio
Long-term debt divided by long-term capital
times interest earned (TIE) ratio
Earnings before interest and taxes divided by interest charges
cash flow coverage (CFC) ratio
A measure of the amount of cash flow generated by a business per dollar of fixed expense
fixed asset turnover ratio
Total revenues divided by net fixed assets
total asset turnover ratio
Total revenues divided by total assets;
days in patient accounts receivable
average length of time it takes a provider to collect its receivables
Comparative analysis (benchmarking)
compares a business’s ratios with established values, such as industry averages; peer group averages; the ratios of leading companies in the industry; or those of primary competitors.
DuPont analysis
provides a good overview of the factors that affect profitability, shows how the total margin, total asset turnover, and amount of debt financing (as measured by the equity multiplier) interact to influence a business’s return on equity.
common-size analysis
A financial statement analysis technique that uses percentages instead of dollars for income statement items and balance sheet account
percentage change analysis
A financial statement analysis technique that expresses year-to-year changes in income statement items and balance accounts as percentages
Inflation accounting
describes a range of accounting systems designed to correct problems arising from historical cost accounting under inflation
