Module 4 Flashcards
Express line items or accounts in the financial statements as percentages.
Common-size analysis
The two major forms of common-size analysis
Horizontal analysis and vertical analysis
Horizontal analysis also called?
Trend analysis
This approach allows the trends over time to be assessed
Horizontal analysis
Express the line item as a percentage of some other line item for the same period
Vertical analysis
With this approach, within period relationship can be assessed
Vertical analysis
What is ratio analysis?
Ratio analysis is the second major technique for financial statement analysis
Ratios are classified into three categories.
Liquidity ratios
Leverage ratios
Profitability ratios
Used to assess the short term debt- paying ability of a company.
Liquidity ratios
A measure of the ability of a company to pay its short-term liabilities out of short-term assets
Current ratio
A measure of liquidity that compares only the most liquid assets with current liabilities
Quick or acid-test ratio
Measures the liquidity of receivables or how long it takes for the entity to turn its receivables into cash
Accounts receivable turn over ratio
Tells how many times the average inventory turns over, or is sold, during the year
Inventory turn over ratio
