reading act textbook Flashcards
what does the current ratio compare
current assets and current liabilities
what kind of ratio is current
liquidity
what does a high current ratio indicate
that a company has sufficent crrent assets to pay current liabilities as they are due
what is the formula for current ratio
current assets / current liabilities
what is solvency
a companys abilitiy to pay its long term liabilities
what is there a high chance of if there is a high debt to equity ratio
bankruptcy
what does the debt to equity ratio show
if a companys debt is too high
what is the formula for debt to equity
Total liabilities / stockholders equity
what does the gross profit ratio show us?
portion of each dollar of sales above its cost of goods sold
how do you calculate gross profit ratio
Gross profit / net sales
what does the price-earnings ratio compare
compares a companys share price with itd earnings pershare
what do investors infer with this ratio
it ties with the investors assesment of a companies future profitability
one way to think about the price to earnings ratio
represents investorys expectaion of earnings growth
Verticle analysis in income statement
% of sales
verticle analysis in the balance sheet
% of total assets
when do we use horixontle analysis
to analyze trends of one company duriing a time period
what do operating activities include
revenue and expenses
how do you calculate operating activities
indirect method
what do investing activities include
the purchase and sale of long term assets
what do financing activities include
long term liabilities and stock holders equity
what cash flow is collection of notes recievable
investing
what cash flow is repayment of notes payable
financing
what cash flow invloves current liab and current assets
operating
what is simple interest earned on
initial investment
future value
how much an amount today will grow to be in the future
compound interest
interest earned on initial investment and previous interest
present value
how much an amount in the future is worth today
example of present value
what is it worth today to recieve 1,000 in three years
what are changes in the fair value reported as
gains or losses
how do you find the equity method formula
initial investment + (% x end NI) - (% x dividends)
inventory turnover
how many times a company has sold and replaced inventory in a given time period
