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62 Cards in this Set
- Front
- Back
Statements that are useful for comparing companies of different sizes, particularly in the same industry:
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Standardized financial statements
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Liquidity ratio that removes inventory, which may take time to convert to cash and may be overstated:
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Quick ratio
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Standardized financial statements that compute all accounts as a percent of total assets:
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Common-size balance sheets
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_____ allow for better comparison through time or between companies:
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Ratios
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What are the 2 problems with having a high current ratio?
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1) Lower profitability
2) Ties up money that could be used elsewhere |
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Ratios that measure how well a company has its interest obligations covered:
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Coverage ratios
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Standardized financial statements that compute all line items as a percent of sales:
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Common-size income statements
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What is depreciation considered to be?
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A non-cash expense
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What is the most stringent test of liquidity?
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Cash ratio
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Ratio that is important to examine industry norms:
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Current ratio
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What are the 4 asset management, or turnover, measures?
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1) inventory turnover
2) days' sales in inventory 3) receivables turnover 4) days' sales in receivables 5) total asset turnover |
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Liquidity ratios measure a firm's ability to meet its _____ obligations:
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Short-term
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A higher current ratio means ____ ____.
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Lower profitability
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A more stringent test than a current liquidity ratio:
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Quick ratio
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_____ make it easier to compare financial information, particularly as the company grows:
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Standardized statements
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What are the 3 types of leverage ratios?
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1) total debt ratio
2) debt/equity 3) equity multiplier |
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How much investors are willing to pay per dollar of current earnings:
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Price-earnings ratio
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Profit per dollar of sales:
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Profit margin
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_____ is a(n) non-cash expense.
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Depreciation
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Leverage ratios measure a firm's ability to meet its _____ obligations.
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Long-term
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Compares the market value of the firm's investments to their cost:
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Market-to-book ratio
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What measures how efficiently a firm uses its assets to generate sales?
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Asset management, or turnover, measures
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Profit per dollar of equity:
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Return on equity
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What are the 2 types of coverage ratios?
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1) times interest earned ratio
2) cash coverage ratio |
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Measures how efficiently the firm uses its assets and how efficiently the firm manages its operations:
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Profitability measures
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Profit per dollar of assets:
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Return on assets
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What are the 2 types of market value measures?
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1) price-earnings ratio
2) market-to-book ratio |
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Ratios that measure a firm's ability to meet its long-term obligations:
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Leverage ratios
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Ratios that measure the firm's ability to meet its short-term obligations:
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Liquidity ratios
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The percentage of net income paid to stockholders:
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Divident payout ratio
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How many times inventory is turned over during the year:
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Inventory turnover
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A measure of the firm's financial leverage:
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Equity multiplier
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Ratio of at least 1 with 1.5-2 being more common:
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Current ratio
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A measure of the firm's operating efficiency:
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Profit margin
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How many days inventory sits on average before it is sold:
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Days' sales in inventory
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What are the 3 types of profitability measures?
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1) profit margin
2) return on assets 3) return on equity |
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Tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio:
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Sustainable growth rate
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A measure of asset use efficiency:
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Total asset turnover
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The percentage of net income retained in the firm:
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Retention ratio
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How many times receivables are turned over during the year:
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Receivables turnover
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Equity multiplier is a measure of the firm's _____.
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Financial leverage
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How many days it takes to collect on credit sales on average:
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Days' sales in receivables
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How well the firm manages its assets:
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Asset use efficiency
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What are the 2 internal uses of financial statements?
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1) Performance Evaluation - compensation and comparison b/t divisions
2) Planning For The Future - guide in estimating future cash flows |
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Profit margin is a measure of the firm's _____.
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Operating efficiency
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Tells us how much the firm can grow assets using retained earnings as the only source of financing:
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Internal growth rate
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What is used to see how a firm's performance is changing through time?
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Time-trend analysis
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_____ are not very helpful by themselves; they need to be compared to something:
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Ratios
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How well the firm controls costs:
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Operating efficiency
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What are the 4 determinants of growth?
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1) profit margin
2) total asset turnover 3) financial leverage 4) divident policy |
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A measure of the firm's asset use efficiency:
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Total asset turnover
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A benchmark used to make comparisons between similar companies or companies within industries:
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Peer group analysis
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Total asset turnover is a measure of the firm's _____.
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Asset use efficiency
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Having a higher _____ ratio means lower profitability.
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Current
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What are the 6 problems w/fiancial statement analysis?
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1) no underlying financial theory
2) finding comparable firms 3) what to do w/ conglomerates, multidivisional firms 4) differences in accounting practices 5) differences in capital structure 6) seasonal variations, one-time events |
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It is not unusual for _____ to be < 1, especially if a firm has a large amount of fixed assets.
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Total asset turnover
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A financial ratio that illustrates the combined effect of profitability, total asset turnover, and leverage on return on equity:
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Du Pont identity
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Which ratio would be used to measure the firm’s ability to pay its bills on time?
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Liquidity ratios
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Measures how well a firm uses its assets to generate sales:
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Total asset turnover
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Which ratio would be used to measure the number of times interest can be paid out of earnings?
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Times interest earned ratio
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What does a profit margin of 0.10 mean?
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For each $1 of sales generated by the firm it earns 10 cents in net income.
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When will ROA = ROE?
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If the debt to equity ratio is zero
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