• Shuffle
Toggle On
Toggle Off
• Alphabetize
Toggle On
Toggle Off
• Front First
Toggle On
Toggle Off
• Both Sides
Toggle On
Toggle Off
Toggle On
Toggle Off
Front

### 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

Play button

Play button

Progress

1/43

Click to flip

### 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 short-term 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. Debt-to-equity ratio Total liabilities / Owner's equity = ? Debt-to-equity ratio Indicates what percentage of a business's assets is owned by creditors. Debt-to-total-assets ratio Total liabilities / Total assets = ? Debt-to-total-assets 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. Times-interest-earned ratio Operating income / Interest = ? Times-interest-earned 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