Term
| What is the "current ratio"? |
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Definition
| The current ratio examines the relationship between current assets and current liabilities, and is the best-known liquidity measure. |
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Term
| What is the "quick ratio"? |
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Definition
| The quick ratio relates current liabilities to only relatively liquid current assets (cash items and accounts receivable). |
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Term
| What is the "cash ratio"? |
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Definition
| The cash ratio is the most conservative liquidity ratio, and relates cash and short-term investments to current liabilities. |
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Term
| What does the "gross profit margin" indicate? |
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Definition
| the basic cost structure of the firm |
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Term
| What does the "operating profit margin" indicate? |
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Definition
| Variability in operating profit margins is a prime indicator of business risk. |
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Term
| What does the "net profit margin" indicate? |
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Definition
| This margin relates net income to sales. |
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Term
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Definition
| This ratio indicates the firm's overall return on all the capital it used. |
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Term
| What does "Return on Owner's Equity" indicate? |
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Definition
The Return on Owner's Equity indicates the rate of return earned on the capital provided by owners.
(The return on Owner's Equity is different from the Return on Total Equity, as it accounts for preferred dividends.) |
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Term
| What does "Return on Total Equity" indicate? |
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Definition
The Return on Total Equity indicates the rate of return on all equity in the enterprise.
(As it is calculated based on ALL equity, as opposed to common equity, it does not discount for preferred dividends) |
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Term
| What is the Coefficient of Variation (CV)? |
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Definition
| The Coefficient of Variation gives a standardized measure of overall business variability (risk) |
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Term
| What is operating leverage and what does it indicate? |
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Definition
A measure of the volatility of operating earnings compared to sales. The greater the volatility of a firm's operating earnings compared to sales, the greater the operating leverage.
(Traditionally, the higher the fixed costs, the higher the operating leverage) |
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Term
| What does the "debt/equity ratio" indicate? |
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Definition
| It's a measure of a company's financial leverage, and represents the relationship between debt financing vs. equity financing. |
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