Mod 11

Question 1

Accounts receivable turnover ratio

Answer 1

An asset management efficiency ratio that measures the number
of times that accounts receivable are rolled over each period

Question 2

Asset management efficiency

Answer 2

A company’s ability to generate sales from the assets it has acquired

Question 3

Book value

Answer 3

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

Question 4

Book value per share

Answer 4

Common equity divided by the number of outstanding shares of common stock

Question 5

Capital structure

Answer 5

The mixture of debt and equity a firm uses to finance its assets

Question 6

Common size financial statements

Answer 6

A financial statement that standardizes the information by
displaying all items as percentages of a common base figure

Question 7

Current ratio

Answer 7

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

Question 8

Debt to equity ratio

Answer 8

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.

Question 9

Debt ratio

Answer 9

A capital structure ratio that indicates the percentage of a company’s assets financed with
debt.

Question 10

DuPont Identity

Answer 10

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

Question 11

Equity multiplier

Answer 11

A measure that captures the effect of the firm’s use of debt financing to magnify its
return on equity

Question 12

Fixed asset turnover ratio

Answer 12

An asset management efficiency ratio that measures how effectively a
company is using its fixed assets to generate revenue

Question 13

Gross profit margin

Answer 13

A profitability ratio that measures how much of every dollar of revenue is left over
after accounting for the cost of goods sold

Question 14

Inventory turnover ratio

Answer 14

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

Question 15

Leverage

Answer 15

The extent to which debt is used to finance a firm’s assets

Question 16

Liquidity

Answer 16

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

Question 17

Market to book ratio

Answer 17

A market value ratio that measures the value of a company by comparing the
book value of a firm to its market value

Question 18

Market value

Answer 18

The estimated price that a buyer would pay and a seller would accept in an open and
competitive market

Question 19

Net profit margin

Answer 19

A profitability ratio that measures how much out of every dollar of sales a company
keeps in earnings

Question 20

Operating profit margin

Answer 20

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

Question 21

Operating return on assets

Answer 21

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

Question 22

Price earnings ratio

Answer 22

A market value ratio used to compare a company’s current share price to its
per-share earnings

Question 23

Profitability

Answer 23

The capacity to make a profit: the income earned after deducting all costs and expenses
related to generating revenue

Question 24

Quick ratio

Answer 24

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

Question 25

Return on equity

Answer 25

A profitability ratio that measures the rate of return on the common
shareholders’ investment

Question 26

Times interest earned ratio

Answer 26

Capital structure ratio that measures the ability of a firm to pay its
interest expense

Question 27

Total asset turnover ratio

Answer 27

An asset management efficiency ratio that measures how efficient a firm is
using its assets to generate sales

Question 28

Trend analysis

Answer 28

The collection and plotting of information from past periods to identify time trends of
important accounting variables

Question 29

Unlevered

Answer 29

A firm that is financed entirely with capital provided by the owners, thus it has no long-term
debt