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20 Cards in this Set
- Front
- Back
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Analyzing Financial Statements involves which 3 characteristics of a company?
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1. Liquidity
2. Profitability 3. Solvency |
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Liquidity
definition |
The ability to pay maturing obligations and expected needs for cash.
Working Capital and Current Ratio measure liquidity. |
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Working Capital
formula |
Current Assests-Current Liability.
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Current Ratio
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Current Assets/Current Liabilities.
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Profitability
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Ratios that measure a company's income for a given period.
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Profit Margin Percentage
ratio |
Net Income/Net Sales
% of each dollar of sales that results in net income. |
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Return on Assets
Ratio |
Net Income/ Total Assets
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Return on common Stockholder's Equity
formula/ Ratio |
Net Income/ Common Equity
% of net income earned for each dollar of owner's investment. |
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Solvency
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The ability of a company to survive for a long period of time.
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Debt to Total Assets Ratio
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Total Debt/ Total Assets
The higher the %, the riskier the company is. |
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Short term creditor
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Banks. Look at the borrower's liquidity.
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Long Term Creditors
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Bondholders and Stockholders. Look at profitability and solvency.
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Name the tools of finacial statement analysis
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- Horizontal Analysis
- Vertical Analysis - Ratio Analysis |
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Horizontal Analysis
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Also called trend anaylisis. It calculates the variance (decrease or increase) in a given period.
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Vertical Analisys
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Also called common size analysis. Evaluates by expressing each item in a F/S as a % of a base amount.
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Ratio Analysis
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Expresses the relationship among selected items of F/S data.
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Acid-Test Ratio or Quick Ratio.
definition. |
A measure of a company's immediate short-term liquidity.
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Acid-Test Ratio or Quick Ratio.
formula |
(cash + short-term investments + net receivables)/current liabilities.
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Receivable Turnover
definition |
Measure the number of times on average, receivables are collected during the period.
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Receivable Turnover
formula |
Net Credit Sales/ Average net receivable.
Net credit sales= Net Sales - cash sales Net Receivable= (beg. balance + ending balance)/2 |
