Accounting Financial Statement Analysis

Front 1

Working Capital

Back 1

Liquidity ratio. Total current assets - Total cur liabilities. Not a ratio. Computed to evaluate the companys ability to pay its current bills. Used w current ratio.

Front 2

Current Ratio

Back 2

Liquidity Ratio. Total Current assets / Total current liab. Measures the ability to pay current liabilities with its current assets.

Front 3

Liquidity Ratio (define)

Back 3

Ability to pay debts as they are coming through. (ability to meet unexpected needs for cash). SHORT TERM

Front 4

Acid-Test Ratio or Quick Ratio

Back 4

Liquidity Ratio. (Cash+Short-term Investments+Receivables)/Total Cur Liab. Worst scenario. Ability to meet current obligations even if none of the inventory can be sold.

Front 5

Current Cash debt coverage ratio

Back 5

Liquidity ratio. net cash flows from operating activities /Average total current liabilities. Measures liquidity. Op activities. Better measurement than the current ratio.

Front 6

Accounts Receivable Turnover Ratio

Back 6

Liquidity ratio. Net sales revenue / Average accounts receivable Measures the number of time the company is able to collect its receivables during the accounting period. The higher the ratio, the faster the company is able to collect cash from its credit customers.

Front 7

Average collection period

Back 7

365/accounts receivable turnover ratio. Liquidity ratio. Bw selling goods and collecting cash.

Front 8

Inventory turnover ratio

Back 8

Liquidity ratio. Cost of goods sold/Average inventory. Number of times the inventory is sold during the period. Higher ratio - faster selling

Front 9

Number of days sales in inventory

Back 9

365/Inventory turnover ratio. Liquidity ratio.Number of days bw purchasing inventory and selling it to customers.

Front 10

Profitability Ratio (Define)

Back 10

Can the company generate a satisfactory rate of return?
Measures income or operating success of a company for a given period of time

Front 11

Gross Margin Rate

Back 11

Profitability Ratio. Gross profit/Net sales revenue. Gross profit rate. Percentage of the selling price of inventory that is gross profit. Ability to maintain an adequate selling price above its cost of goods sold. Declines with a more competitive industry.

Front 12

Profit Margin Ratio

Back 12

Profitability Ratio. Net income / net sales revenue. Percentage of each dollar of sales that results in net income. High volume businesses (grocery) have low profit margins.

Front 13

Return on assets. ROA

Back 13

Profitability Ratio. net income/average total assets. Overall profitability of assets in terms of the income earned on each dollar invested in assets.

Front 14

Return on Equity. ROE

Back 14

Profitability Ratio. Net income/average total equity. How many dollars of net income is earned for each dollar invested by the stockholders.

Front 15

Earnings per share

Back 15

Profitability Ratio. Net income-PREFERRED STOCK DIVIDENDS/Number of common shares outstanding. Amount of net income associated with each share of common stock. How much of the net income is associated with his or her ownership interest. Required to be shown in financial statements.

Front 16

Price earnings ratio

Back 16

Profitability Ratio. Market price per share of common stock / earnings per share. Measures investors expectations regarding the growth potential and earnings stability of a company. Market price/ 1$ of earnings.

Front 17

Solvency Ratios (define)

Back 17

Can the company survive over a long period of time? Longer than a year. Measures the ability to survive over a long period of time.

Front 18

Debt-to-equity ratio

Back 18

Solvency Ratio. Total liabilities/Total stockholders equity. Percentage of funds being provided by creditors versus stockholders. Provides a measure of creditors protection in the event of the company not being able to pay its debts. (insolvency) Higher the ratio, higher the risk.

Front 19

Times interest earned ratio

Back 19

Solvency ratio. (Net Income+Income tax expense+Interest expense)/Interest expense Ability to meet its interest pauments as they come die. Margin of safety provided to creditors.