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62 Cards in this Set

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Statements that are useful for comparing companies of different sizes, particularly in the same industry:
Standardized financial statements
Liquidity ratio that removes inventory, which may take time to convert to cash and may be overstated:
Quick ratio
Standardized financial statements that compute all accounts as a percent of total assets:
Common-size balance sheets
_____ allow for better comparison through time or between companies:
Ratios
What are the 2 problems with having a high current ratio?
1) Lower profitability
2) Ties up money that could be used elsewhere
Ratios that measure how well a company has its interest obligations covered:
Coverage ratios
Standardized financial statements that compute all line items as a percent of sales:
Common-size income statements
What is depreciation considered to be?
A non-cash expense
What is the most stringent test of liquidity?
Cash ratio
Ratio that is important to examine industry norms:
Current ratio
What are the 4 asset management, or turnover, measures?
1) inventory turnover
2) days' sales in inventory
3) receivables turnover
4) days' sales in receivables
5) total asset turnover
Liquidity ratios measure a firm's ability to meet its _____ obligations:
Short-term
A higher current ratio means ____ ____.
Lower profitability
A more stringent test than a current liquidity ratio:
Quick ratio
_____ make it easier to compare financial information, particularly as the company grows:
Standardized statements
What are the 3 types of leverage ratios?
1) total debt ratio
2) debt/equity
3) equity multiplier
How much investors are willing to pay per dollar of current earnings:
Price-earnings ratio
Profit per dollar of sales:
Profit margin
_____ is a(n) non-cash expense.
Depreciation
Leverage ratios measure a firm's ability to meet its _____ obligations.
Long-term
Compares the market value of the firm's investments to their cost:
Market-to-book ratio
What measures how efficiently a firm uses its assets to generate sales?
Asset management, or turnover, measures
Profit per dollar of equity:
Return on equity
What are the 2 types of coverage ratios?
1) times interest earned ratio
2) cash coverage ratio
Measures how efficiently the firm uses its assets and how efficiently the firm manages its operations:
Profitability measures
Profit per dollar of assets:
Return on assets
What are the 2 types of market value measures?
1) price-earnings ratio
2) market-to-book ratio
Ratios that measure a firm's ability to meet its long-term obligations:
Leverage ratios
Ratios that measure the firm's ability to meet its short-term obligations:
Liquidity ratios
The percentage of net income paid to stockholders:
Divident payout ratio
How many times inventory is turned over during the year:
Inventory turnover
A measure of the firm's financial leverage:
Equity multiplier
Ratio of at least 1 with 1.5-2 being more common:
Current ratio
A measure of the firm's operating efficiency:
Profit margin
How many days inventory sits on average before it is sold:
Days' sales in inventory
What are the 3 types of profitability measures?
1) profit margin
2) return on assets
3) return on equity
Tells us how much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio:
Sustainable growth rate
A measure of asset use efficiency:
Total asset turnover
The percentage of net income retained in the firm:
Retention ratio
How many times receivables are turned over during the year:
Receivables turnover
Equity multiplier is a measure of the firm's _____.
Financial leverage
How many days it takes to collect on credit sales on average:
Days' sales in receivables
How well the firm manages its assets:
Asset use efficiency
What are the 2 internal uses of financial statements?
1) Performance Evaluation - compensation and comparison b/t divisions

2) Planning For The Future - guide in estimating future cash flows
Profit margin is a measure of the firm's _____.
Operating efficiency
Tells us how much the firm can grow assets using retained earnings as the only source of financing:
Internal growth rate
What is used to see how a firm's performance is changing through time?
Time-trend analysis
_____ are not very helpful by themselves; they need to be compared to something:
Ratios
How well the firm controls costs:
Operating efficiency
What are the 4 determinants of growth?
1) profit margin
2) total asset turnover
3) financial leverage
4) divident policy
A measure of the firm's asset use efficiency:
Total asset turnover
A benchmark used to make comparisons between similar companies or companies within industries:
Peer group analysis
Total asset turnover is a measure of the firm's _____.
Asset use efficiency
Having a higher _____ ratio means lower profitability.
Current
What are the 6 problems w/fiancial statement analysis?
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
It is not unusual for _____ to be < 1, especially if a firm has a large amount of fixed assets.
Total asset turnover
A financial ratio that illustrates the combined effect of profitability, total asset turnover, and leverage on return on equity:
Du Pont identity
Which ratio would be used to measure the firm’s ability to pay its bills on time?
Liquidity ratios
Measures how well a firm uses its assets to generate sales:
Total asset turnover
Which ratio would be used to measure the number of times interest can be paid out of earnings?
Times interest earned ratio
What does a profit margin of 0.10 mean?
For each $1 of sales generated by the firm it earns 10 cents in net income.
When will ROA = ROE?
If the debt to equity ratio is zero