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32 Cards in this Set
- Front
- Back
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Ratio Analysis |
Involves the methods of calculating and interpreting financial ratios to assess the firms performance |
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liquidity |
A firms ability to satisfy its short-term obligations as they come due |
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Net working capital |
A measure of liquidity calculated by subtracting current liabilities from current assets |
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Current Ratio |
A measure of liquidity calculated by dividing the firms current assets by its current liabilities |
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Quick (acid-test) ratio |
A measure of liquidity calculated by dividing the firms current assets minus inventory by current liabilities |
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Activity Ratios |
Measure of the companys effectiveness of managing accounts receivable, inventory, accounts payable, fixed assets, and total assets |
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Inventory Turnover |
The average number of times a company turns over (sells) their complete stock of inventory in a year |
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Average age of inventory |
Measures the effectiveness of the companys management of inventory it is the average length of time inventory is held by the company |
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Average collection period |
The average amount of time needed to collect AR |
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Average Payment Period |
The average amount of time needed to pay AP |
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Fixed Asset Turnoer |
Indicates the efficiency with which the firm uses its net fixed asset to generate sales |
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Total Asset Turnover |
Indicates the efficiency with which the firm uses its assets to generate sales |
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Capitalization Ratios |
Show how a firm has financed the investment in assets, There are three alternatives: debt, preferred equity, and common equity |
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Coverage Ratios |
Measure the firms ability to service the sources of financing |
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Debt Ratio |
Measures the proportion of total assets financed by the firms creditors |
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Preferred Equity Ratio |
Measures the proportion of total assets financed by preferred shares |
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Common Equity Ratio |
Measures the proportion of total assets financed by common shareholders |
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Costly debt ratio |
Measures the proportion of total assets financed by costly forms of debt financing |
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Debt/equity Ratio |
Measures the proportion of long-term debt to common equity |
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Times interest earned ratio |
Sometimes called the interest coverage ratio, it measures the firms ability to make contractual interest payments |
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Fixed-charge coverage ratio |
Measures the firms ability to meet all fixed-payment obligations |
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Common-size income statement |
An income statement in which each item is expressed as a percentage of sales |
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Gross Margin |
Measures the percentage of each sales dollar remaining after the firm has paid the direct costs of the products sold |
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Operating Margin |
Measures the percent of each sales dollar remaining after all expenses associated with producing andselling the product and operating the company are deducted |
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Profit Margin |
Measures the percentage of each sales dollar remaining after all expenses, including financing expenses and taxes have been deducted |
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Return on Total Assets (ROA) |
Measures the firms overall effectiveness in generating profits, with its available assets;also called the return on investment (ROI) |
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Return on Equity |
Measures the return earned on the owners investment in the firm |
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Price/Earning (P/E) ration |
Measures the amount investors are willing to pay for each dollar of the firms earnings the higher the ratio the greater the investor confidence |
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DuPont Model |
A method used to analyze the key measure of profitability from a shareholders perspective: return on equity (ROE) it is based on profit margin, total asset turnover, and the financial leverage multiplier |
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Cross-sectional ratio analysis |
Comparison of one companys ratios to another company or group of companies ratios calculated for the same period of time industry average ratios are often used |
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Benchmarking |
A type of cross-sectional analysis in which the firms ratio values are compared to those of a key competitor or group of competitors, primarily to identify areas for improvement |
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Time-series analysis |
Evaluation of the firms financial performance over time using financial ratio analysis |
