Mod 11 Flashcards
Accounts receivable turnover ratio
An asset management efficiency ratio that measures the number
of times that accounts receivable are rolled over each period
Asset management efficiency
A company’s ability to generate sales from the assets it has acquired
Book value
A company’s book value is its net assets.
In other words, net assets equal total assets less
total liabilities, or, net assets = common stockholders’ equity
Book value per share
Common equity divided by the number of outstanding shares of common stock
Capital structure
The mixture of debt and equity a firm uses to finance its assets
Common size financial statements
A financial statement that standardizes the information by
displaying all items as percentages of a common base figure
Current ratio
A liquidity ratio that measures whether the firm has enough current resources to pay its
short-term obligations. The current ratio compares current assets to current liabilities
Debt to equity ratio
A capital structure ratio that measures how many dollars of debt are used per
dollar of equity to finance the firm’s assets. It is an important measure of the firm’s leverage.
Debt ratio
A capital structure ratio that indicates the percentage of a company’s assets financed with
debt.
DuPont Identity
A method of assessing a company’s return on equity ratio by breaking it down into
three parts: net profit margin, total asset turnover, and an equity multiplier that reflects the use of debt
financing
Equity multiplier
A measure that captures the effect of the firm’s use of debt financing to magnify its
return on equity
Fixed asset turnover ratio
An asset management efficiency ratio that measures how effectively a
company is using its fixed assets to generate revenue
Gross profit margin
A profitability ratio that measures how much of every dollar of revenue is left over
after accounting for the cost of goods sold
Inventory turnover ratio
An asset management efficiency ratio that measures the number of times
inventory is sold and replaced in a given time period. The process of turning cash into inventory then
back into cash is known as the inventory cycle
Leverage
The extent to which debt is used to finance a firm’s assets
Liquidity
The amount of capital that is available to meet immediate and short-term obligations. A
measure of how well a firm can use its assets to service its debts
Market to book ratio
A market value ratio that measures the value of a company by comparing the
book value of a firm to its market value
Market value
The estimated price that a buyer would pay and a seller would accept in an open and
competitive market
Net profit margin
A profitability ratio that measures how much out of every dollar of sales a company
keeps in earnings
Operating profit margin
A profitability ratio the measures how much of every dollar of revenue is left
over after accounting for the cost of goods sold and operating expenses
Operating return on assets
A profitability ratio that measures how effective a company is at controlling
operating expenses and how efficient it is at using its assets to generate revenue
Price earnings ratio
A market value ratio used to compare a company’s current share price to its
per-share earnings
Profitability
The capacity to make a profit: the income earned after deducting all costs and expenses
related to generating revenue
Quick ratio
A liquidity ratio that measures a company’s ability to meet its short-term obligations with its
most liquid assets – generally cash and accounts receivable
Return on equity
A profitability ratio that measures the rate of return on the common
shareholders’ investment
Times interest earned ratio
Capital structure ratio that measures the ability of a firm to pay its
interest expense
Total asset turnover ratio
An asset management efficiency ratio that measures how efficient a firm is
using its assets to generate sales
Trend analysis
The collection and plotting of information from past periods to identify time trends of
important accounting variables
Unlevered
A firm that is financed entirely with capital provided by the owners, thus it has no long-term
debt
