Study your flashcards anywhere!
Download the official Cram app for free >
 Shuffle
Toggle OnToggle Off
 Alphabetize
Toggle OnToggle Off
 Front First
Toggle OnToggle Off
 Both Sides
Toggle OnToggle Off
 Read
Toggle OnToggle Off
How to study your flashcards.
Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key
Up/Down arrow keys: Flip the card between the front and back.down keyup key
H key: Show hint (3rd side).h key
A key: Read text to speech.a key
43 Cards in this Set
 Front
 Back
The three methods of analyzing financial statements.

Vertical, horizontal, and ratio analysis


The process of using a single variable on a financial statement as a constant and determining how all other variables relate as a percetage of the single variable; used to determine how much of a company's net sales are being consumed by each individual entry on the income statement.

Vertical Analysis


Percentage of net sales = (Income statement item in $ / Net sales in $) * 100

Vertical Analysis of an income statement


Percentage of total assets = (Balance sheet item / Total assets) * 100

Vertical Analysis of a balance sheet


A determination of the percentage increase or decrease in an account from a base time period to successive time periods.

Horizontal Analysis


Percentage change = ((New time period amount  Old time period amount) / Old time period amount) * 100

Horizontal Analysis Formula


Used to determine the health of a business, especially as that business compares with oher firms in the same industry or similar industries.

Ratio Analysis


Determine how much of a firm's current assets are available to meet shortterm creditor's claims.

Liquidity Ratios


Current assets / Current Liabilities = ?

Current Ratio


(Current assets  Inventory) / Current liabilities = ?

Quick (Acid Test) Ratio


Indicate how efficiently a business is using its assets.

Activity Ratios


Indicates how efficiently a firm is moving its inventory; how many times per year the firm movies its average inventory.

Inventory Turnover Ratio


Cost of Goods Sold / Average inventory at cost = ?

Inventory Turnover


(Beginning inventory + Ending Inventory) / 2 = ?

Inventory Turnover (alternate)


Allows us to determine how fast our company is turning its credit sales into cash.

Accounts receivable turnover ratio


Credit sales / Accounts receivable = ?

Accounts receivable turnover ratio


Indicates how efficiently fixed assets are being used to generate revenue for a firm.

Fixed asset turnover ratio


Net sales / Fixed assets = ?

Fixed asset turnover


Indicates how efficiently a firm uses its total assets to generate revenue for the firm.

Total asset turnover ratio


Net sales / Total assets = ?

Total asset turnover


Indicate what percentage of the business's assets is financed with creditors' dollars.

Leverage (debt) ratio


Indicates what percentage of the owner's equity is debt.

Debttoequity ratio


Total liabilities / Owner's equity = ?

Debttoequity ratio


Indicates what percentage of a business's assets is owned by creditors.

Debttototalassets ratio


Total liabilities / Total assets = ?

Debttototalassets


Shows the relationship between operating income and the amount of interest in dollars the company has to pay to its creditors on an annual basis.

Timesinterestearned ratio


Operating income / Interest = ?

Timesinterestearned


Used by potential investors and creditors to determine how much of an investment will be returned from either earnings on revenues or appreciation of assets.

Profitability ratios


Used to determine how much gross profit is generated by each dollar in net sales.

Gross profit margin ratio


Gross profit / Net sales = ?

Gross profit margin ratio


Used to determine how much each dollar of sales generates in operating income.

Operating profit margin ratio


operating income / Net sales = ?

Operating profit margin


Tells how much a firm earned on each dollar in sales after paying all obligations, including interest and taxes.

Net profit margin ratio


Net profit / Net sales = ?

Net profit margin


Allows you to determine how much we are actually earning on each dollar in assets before paying interest and taxes.

Operating return on assets ratio


Operating income / Total assets = ?

Operating return on assets


Shows how much a firm earns on each dollar in assets after paying both interest and taxes.

Net return on assets (ROA) ratio


Net profits / Total assets = ?

Net return on assets


Used to compare firms within the same industry.

Market ratios


Shows the amount earned on each share of common stock.

Earnings per share ratio


(Net income  Preferred dividends) / Number of common shares = ?

Earnings per share


Magnification of earnings per share in terms of market price of stock.

Price earnings ratio


Market price of stock / Earnings per share = ?

Price earning ratio
