Accy 110-Chapter 4

Front 1

Time Series Analysis

Back 1

Analyizes chainges in profitability ratios over time

Front 2

Cross-section analysis

Back 2

Compare companies in the same industry

Front 3

Rate of Return on Assets

Back 3

See sheet for formula-and explanation
Not good for companies whoese assets are people-Minority interest-Happens when the company buys a piece of a company but not the entire company

Front 4

Profit Margin

Back 4

Measure the companys ability to generate income from operations at a level of sales
Income/Sales

Front 5

Asset Turnover

Back 5

Asset Turnover measures ability to generate sales revenue from a level of assets
Sales/Assets

Front 6

Sales to Receivables

Back 6

Reflects trade-off between increases sales and accumulation of funds in receivables

Front 7

Sales to inventories

Back 7

reflects trades-off between funds accumulated in inventory and the potential loss of current and future sales

Front 8

Sales to fixed assets

Back 8

reflects trade-off between fixed asset investments having high break even points and investments in more efficient productive assets with high sales potential

Front 9

Operating Leverage

Back 9

Is the process of operating with a higher proportion of fixed costs
-Will have higher variability in their ROA
-Committed fixed costs are incurred regardless of the actual level of activity

Front 10

Cyclicality of sales

Back 10

Companies strive for variable cost structure when sales are cyclical to reduce inherent risk

Front 11

Product Life Cycle

Back 11

1-Introduction-Negative or low ROA
2-Growth-Increasing ROA
3-Maturity-Highest ROA
4-Decline-Return to low ROA

Front 12

AR Turnover

Back 12

Net Sales on account/average AR Balance

Front 13

Inventory Turnover

Back 13

=Cost of Goods Sold/Average Inventories

Front 14

Fixed Asset Turnover

Back 14

Sales/Average Fixed Assets

Front 15

Rate of Return on Common Shareholders Equity-ROCE

Back 15

=(Net Income-Preferred stock dividend)/(Average Common Shareholders Equity)
Measure the Return to common shareholders including the results of a company's operating, investing, and financing decision

Front 16

Earning Per Common Share

Back 16

Basic EPS= Net Income-Preferred Stock Dividends/Weighted Average # of common shares outstanding
-Can raise or lower depending on the # of shares outstanding
-A company can buy more shares back to raise EPS
-Neg-Doesnt take into account # of assets, etc.