Financial Chapter 8

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  1. Ratio
    A comparison of two numeric values expressed in the form of a fraction or %age.
  2. ratio analysis
    The study of the relationships b/t various financial statement amounts.
  3. activity ratio
    A ratio that measures the rate at which a co's various assets are converted (turned over) into sales or cash.

    • aka operating efficiency ratio
    • aka turnover ratio
  4. total asset turnover ratio
    A type of activity ratio which indicates how efficiently a co. is using its cash, investments, and other assets to support income producing activities.
  5. profitability ratio
    A ratio that provides insurers with a relative measure of their overall success by comparing the co's profits, or gains from operations, to the resources used to generate those profits.
  6. net profit margin
    A profitability ratio which shows how much after-tax profit is generated by each dollar of total revenue.
  7. return on assets ratio (ROA)
    A profitability ratio that shows info re co's success in using assets to earn a profit.
  8. return on invested assets ratio (ROIA)
    A profitability ratio that compares net income to avg invested assets.
  9. return on equity ratio (ROE)
    profitability ratio that measures the return to a co's owners by relating profits to owners' equity.
  10. current ratio
    A solvency ratio compares co's current assets to its current liabilities.
  11. capital and surplus ratio
    A solvency ratio that describes the relationship b/t a co's capital and surplus and its liabilities.
  12. weighted value
    A value that has been multiplied by a percentage.
  13. leverage effect
    A measure of the impact of fixed costs-- either operating costs or financing costs--on a co's potential risks and returns to co owners.
  14. debt-to-equity ratio
    A type of leverage ratio that compares long-term debt to owners' equity.
  15. insurance leverage ratio
    A leverage ratio that compares a co's contractual reserves to its capital & surplus.
  16. Insurance Regulatory Information System (IRIS)
    In the US, a ratio based analysis of ins co's that uses 12 standardized financial ratios to identify ins co's that are most likely to experience financial difficulty.
  17. early-warning financial ratio tests
    In Canada, a set of ratios used by regulators to analyze insurers' financial statements.
  18. Financial Analysis and Solvency Tracking (FAST) system
    In the US, a system used to evaluate the solvency of insurers; based on (1) ratio analysis of an insurer's most recent financial statements and (2) analysis of a 5 yr hx of specific aspects of the insurer's financial statements.
  19. rating agency
    An independently owned, private org. that evaluates the financial condition of insurers and provides info to potential customers of and investors in ins. co's.
Card Set
Financial Chapter 8
Chapter 8: Understanding Financial Ratios
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