ACC 201 ch 12
Card Set Information
ACC 201 ch 12
Financial Statement Analysis
Acid-test ratio p. 575
Cash, current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.
Aggressive accounting practices . p. 591
Practices that result in reporting higher income, higher assets, and lower liabilities
Asset turnover p. 580
Net sales divided by average total assets, which measures the sales per dollar of assets invested.
Average collection period p. 572
Approximate number of days the average accounts receivable balance is outstanding. It equals 365 divided by the receivables turnover ratio.
Average days in inventory p. 573
Approximate number of days the average inventory is held. It equals 365 days divided by the inventory turnover ratio.
Conservative accounting practices . p. 591
Practices that result in reporting lower income, lower assets, and higher liabilities
Current ratio p. 574
Current assets divided by current liabilities; measures the availability of current assets to pay current liabilities.
Debt to equity ratio . p. 575
Total liabilities divided by stockholders' equity; measures a company's solvency risk
Discontinued operation p. 583
The sale or disposal of a significant component of a company's operations.
Extraordinary item p. 584
An event that is (1) unusual in nature and (2) infrequent in occurrence.
Gross profit ratio . p. 578
Gross profit divided by net sales; measures the amount by which the sale price of inventory exceeds its cost per dollar of sales
Growth stocks p. 581
Stocks that have high expectations of future earnings growth and therefore usually trade at higher PE ratios.
Horizontal analysis p. 567
Analyzes trends in financial statement data for a single company over time.
Inventory turnover ratio p. 573
Cost of goods sold divided by average inventory; the number of times the firm sells its average inventory balance during a reporting period.
Liquidity p. 571
Refers to a company's ability to pay its current liabilities.
Price-earnings (PE) ratio . p. 581
Price-earnings (PE) ratio Compares a company's share price with its earnings per share. p. 581
Profit margin. p. 580
Net income divided by net sales; indicates the earnings per dollar of sales
Profitability ratios . p. 578
Measure the earnings or operating effectiveness of a company
Quality of earnings p. 587
Refers to the ability of reported earnings to reflect the company's true earnings, as well as the usefulness of reported earnings to predictfuture earnings.
Receivables turnover ratio . p. 572
Net credit sales divided by average accounts receivable; the number of times during a year that the average accounts receivable balance is collected (“turns over”)
Return on assets p. 579
Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.
Return on equity p. 580
Net income divided by average stockholders' equity; measures the income generated per dollar of equity.
Solvency p. 571
Refers to a company's ability to pay its long-term liabilities.
Times interest earned ratio p. 575
Ratio that compares interest expense with income available to pay those charges.
Value stocks p. 581
Stocks that have lower share prices in relationship to their fundamental ratios and therefore trade at lower (bargain) PE ratios.
Vertical analysis . p. 564
Expresses each item in a financial statement as a percentage of the same base amount