Accounting 102 Chapter 13 Financial Statement Analysis
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Horizontal Analysis (p. 652)
A comparison of financial statement items over a period of time.
Vertical analysis (p. 652)
A comparison of various financial statement items within a single period with the use of common-size statements.
Trend Analysis (p. 655)
Tracking items over a series of years
Common-size statements (p. 656)
Recast all items on the statement as a percentage of a selected item on the statement.
Gross profit ratio (p. 657)
Gross profit to net sale.
Profit Margin (p. 657)
Net income to net sales
An overall indicator of management's ability to control expenses, reflects the amount of income for each dollar of sales.
Liquidity (p. 658)
The nearness to cash of the assets and liabilities.
Nearness to cash deals with the length of time before cash is realized.
They concern basically the company's ability to pay its debts as they come due
Working capital (p. 658)
Current assets minus current liabilities.
Current ratio (p. 659)
The ratio of current assets to current liabilities.
Acid-test or quick ratio (p. 660)
A stricter test of liquidity than the current ratio; excludes inventory and prepayments from the numerator.
Cash flow from operations tocurrent liabilities ratio (p. 660)
A measure of the ability to pay current debts from operating cashflows.
Accounts receivable turnover ratio (p. 661)
A measure of the number of times accounts receivable are collected in a period.
Number of days' sales in receivables
A measure of the average age of accounts receivable.
Inventory turnover ratio (p. 662)
A measure of the number of times inventory is sold during a period.
Number of days' sales in inventory (p. 663)
A measure of how long it takes to sell inventory.
Cash-to-cash operating cycle (p. 663)
The length of time from the purchase of inventory to the collection of any receivable from the sale.
Number of Days' Sales in Inventory + Number of Days' Sales in Receivables.
Solvency (p. 663)
The ability of a company to remain in business over the long term.
Debt-to-equity ratio (p. 664)
The ratio of total liabilities to total stockholders' equity.
To determine the degree to which the company relies on outsiders for funds.
Times interest earned ratio (p. 664)
An income statement measure of the ability of a company to meet its interest payments.
Debt service coverage ratio (p. 665)
A statement of cash flows measure of the ability of a company to meet its interest and principal payments.
Cash flow from operations to capital expenditures ratio (p. 666)
A measure of the ability of a company to finance long-term asset acquisitions with cash from operations.
Profitability (p. 666)
How well management is using company resources to earn a return on the funds invested by various groups.
Return on assets ratio (p. 666)
A measure of a company's success in earning a return for all providers of capital.
Return on sales ratio (p. 667)
A variation of the profit margin ratio;measures earnings before payments to creditors.
Asset turnover ratio (p. 668)
The relationship between net sales and average total assets.
Return on common stockholders' equity ratio (p. 668)
A measure of a company's success in earning a return for the common stockholders.
Leverage (p. 669)
The use of borrowed funds and amounts contributed by preferred stockholders to earn an overall return higher than the cost of these funds.
Earnings per share (EPS) (p. 670)
A company's bottom line stated on a per-share basis.
Price/earnings (P/E) ratio (p. 670)
The relationship between a company's performance according to the income statement and its performance in the stock market.
Dividend payout ratio (p. 671)
The percentage of earnings paid out as dividends.
Dividend yield ratio (p. 672)
The relationship between dividends and the market price of a company's stock.
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