Unit 4 Flashcards
Comparing a firm’s ratios across time
Trend Analysis
Comparing a firm’s financial ratios to other firms’ ratios or industry averages.
Cross-sectional Analysis
Firms whose performance varies according to the season
Seasonal Firms
A category of ratios that measure a firm’s ability to meet short-term obligations
Liquidity Ratios
A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm’s operational efficiency and profitability.
Activity Ratios
A category of ratios that consider how a firm is financed.
Leverage Ratios
A category of ratios that are commonly used to directly judge how well management is doing as they strive to maximize owner wealth
Profitability Ratios
A category of ratios that are used to evaluate the current share price of a public firm’s stock
Market Ratios
A liquidity ratios found by current assets less inventory, divided by current liabilities; also called the acid-test ratio
Quick Ratio
The percentage of sales remaining after all costs have been deducted from a company’s total sales; indicates the profit earned by the firm
Net Margin
An expanded formula of the return of equity, net margin times total asset turnover times leverage multiplier, which represent the components of profitability, activity (efficiency), and financing.
DuPont Framework
Another name for debt or liability
Leverage
Increased volatility in earnings as a result of using debt
Financial Risk
The process of completing a financial analysis to compare a firm’s financial performance to that of other similar firms.
Benchmarking
A feature of preferred stock specifying that if a company skips payment of a preferred stock dividend one year, it is still required to pay that dividend sometime in the future before paying any common dividends.
Cumulative
The percent of net income distributed to the shareholders.
Payout Ratio
The percent of net income retained in the firm; also called the retention ratio.
Plowback Ratio
The percent of net income retained in the firm; also called the plowback ratio
Retention Ratio
measures how many times accounts receivable are “rolled over” during a year.
Accounts Receivable Turnover
measures the number of days it takes the firm to collect its receivables.
Average Collection Period
measures how many times the company turns over its inventory during the year.
Inventory Turnover
represents the total sales generated per dollar invested in the firm’s assets.
Total Asset Turnover
measures firm’s efficiency in utilizing its fixed assets (such as property, plant, and equipment).
Fixed Asset Turnover
is the summary measure of operating efficiency, which considers both the management’s success in controlling expenses, contributing to profit margins, and its efficient use of assets to generate sales.
Operating Income Return on Investment
measures the proportion of the firm’s assets that are financed by borrowing or debt financing.
Debt ratio
shows the proportion of debt financing relative to equity financing.
Debt-to-Equity ratio
measures the ability of the firm to service its debt or repay the interest on debt.
Times Interest Earned Ratio
represents bottom-line earnings as a percentage of all assets utilized in the firm.
Return on Assets
shows how much the firm earned as a percentage of each dollar of equity invested in the business.
Return on Equity
shows how well the firm’s management controls its direct expenses to generate profits.
Gross Margin
measures how much profit is generated from each dollar of sales after accounting for both costs of goods sold and operating expenses.
Operating Margin
measures how much income is generated from each dollar of sales after adjusting for all expenses (including income taxes).
Net (Profit) Margin
shows the relation between the market value of a share to its book value
Market-to-Book Ratio
measures how attractive or reasonable a firm’s current price is, relative to its earnings.
Price-to-Earnings Ratio
