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30 Cards in this Set
- Front
- Back
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Financial statement analysis techniques
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-Vertical analysis
-Trend analysis -Ratio analysis |
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Vertical analysis
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The use of common-size statements to highlight basic relationships among items within a single set of financial statements.
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Common-size statement
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A financial statement in which amounts are reported as a percentage of a base figure.
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Trend analysis
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An analysis that identifies patterns in past losses and then projects these patterns into the future.
A comparison of financial statement data across two or more periods. |
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Ratio analysis
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A financial analysis tool used to study the financial condition of an account.
Makes it easier to analyze companies of different sizes. |
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Profitability financial ratios
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-Net profit margin
-ROA -ROE -DuPont identity |
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Efficiency financial ratios
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-Accounts receivable turnover
-Asset turnover -Inventory turnover |
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Liquidity financial ratios
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-Current ratio
-Acid test or quick ratio |
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Leverage financial ratios
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-Debt-to-equity ratio
-Debt-to-assets ratio |
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Net profit margin
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Net income / sales
The percentage of sales remaining after deducting all expenses. |
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Ratio analysis of financial statements
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-Efficiency
-Liquidity -Leverage -Profitability |
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Accounts receivable turnover
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Credit sales / Accounts receivable
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Asset turnover
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Sales / Total Assets
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Inventory turnover
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Cost of goods sold / Inventory
An efficiency ratio that indicates how quickly inventory is sold, generating either cash or accounts receivable. |
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Current ratio
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Current assets / current liabilities
A liquidity ratio that indicates the companys ability to meet its short-term financial obligations. |
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Acid test or quick ratio
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(Cash + Marketable securities + Accounts Receivable) / Current liabilities
A liquidity ratio that provides a measure of a companys ability to meet it current oblications if it cannot sell its inventory. |
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Debt-to-equity ratio
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Long-term debt / Shareholders equity
A leverage ratio that measures the extent to which a company is financed using borrowings rather than its own funds. A ratio higher than 100 is a company financed by debt, a ratio lower than 100 is a company financed by equity. |
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Debt-to-asset ratio or debt ratio
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Total liabilities / total assets
A leverage ratio that shows the extent to which a companys assets are financed by debt. A ratio higher than 1.5 is a company financed by debt and a ratio less than 1.5 is a company financed by equity. |
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Equity multiplier
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Total assets / Shareholders equity
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Net profit margin
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Net income / sales
A profibility ratio that measures the percentage of sales remaining after deducting all expenses that indicates how effective an insurer is at cost control. |
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Return on assets-ROA
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Net income / total assets
A profitability ratio that shows how well a company has used its resources by comparing net income to the assets invested to generate that income. |
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Return on equity-ROE
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Net income / shareholders equity
A profitability ratio that shows the rate of return that shareholders are earning on their equity in the companys assets. |
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Dupont identity
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(Net income / sales) x (sales / total assets) x (total assets / shareholders equity)
An analysis on ROA & ROE by breaking them down into their component ratios. |
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Turnover ratios
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-Accounts receivable ratio
-Asset turnover ratio -Inventory turnover ratio |
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Accounts receivable turnover ratio
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Credit sales / Accounts receivable
An efficiency ratio that indicates how quickly a business collects the amounts owed by its customers. |
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Days sales outstanding
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365 / accounts receivable turnover
A measure of the number of days it takes on agevery for a company to collect its accounts receivable. |
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Fixed assets
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Resources that cannot be expected to be sold or consumed within the businesses normal operating cycle and that are usually considered to be long lived.
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Liquidity
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Companys ability to convert assets to cash in order to satisfy its obligations.
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Working capital
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Current assets - Current liabilities
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Leverage
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Measure of the extent to which a company has borrowed money.
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