# Shared Flashcard Set

## Details

Tools of Financial Analysis
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18
Accounting
02/03/2014

Term
 horizontal or trend analysis
Definition
 a technique for evaluating a series of financial statement data over a period of time, to determine the increase (decrease) that has taken place, expressed as either an amount or a percentage.formula for changes since base period:(current year amount-base year amount) / (base year amount)formula for relationship to base year. (current year amount) / (base year amount)
Term
 vertical or common-size analysis
Definition
 a technique for evaluating financial statement data that expresses each item within a financial statement as a percent of a base amount.
Term
 liquidity ratio
Definition
 measures of the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash.
Term
 profitability ratio
Definition
 measures of the income or operating success of an enterprise for a given period of time.
Term
 solvency ratio
Definition
 measures the ability of the enterprise to survive over a long period of time.
Term
 current ratio
Definition
 (liquidity ratio) a measure used to evaluate a company's liquidity and short-term debt-paying ability; computed by dividing current assets by current liabilities.formula:(current assets) / (current liabilities)
Term
 acid-test or quick ratio
Definition
 a measure of a company's immediate short-term liquidity; computed by dividing the sum of cash, short-term investments, and net receivables by current liabilities.formula:[cash + short-term investments + receivables (net)] / (current liabilities)
Term
 receivables turnover
Definition
 (liquidity ratio) a measure of the liquidity of receivables; computed by dividing net credit sales by average net receivables. formula: (net credit sales) / (average net receivables)
Term
 inventory turnover
Definition
 (liquidity ratio) a measure of the liquidity of inventory; computed by dividing cost of goods sold by average inventory.formula:(cost of goods sold) / (average inventory)
Term
 profit margin
Definition
 (profitability ratio) measures the percentage of each dollar of sales that results in net income; computed by dividing net income by net sales. formula:(net income) / (net sales)
Term
 asset turnover
Definition
 (profitability ratio) a measure of how efficiently a company uses its assets to generate sales: computed by dividing net sales by average assets.formula:(net sales) / (average assets)
Term
 return on assets
Definition
 (profitability ratio) an overall measure of profitability; computed by dividing net income by average assets. formula:(net income) / (average assets)
Term
 return on common stockholders' equity
Definition
 (profitability ratio) measures the dollars of net income earned for each dollar invested by the owners; computed by dividing net income by average common stockholders' equity.formula:(net income) / (average common stockholders' equity)
Term
 earnings per share (EPS)
Definition
 (profitability ratio) the net income earned on each share of common stock; computed by dividing net income by the number of weighted average common shares outstanding. formula:(net income) / (weighted average common shares outstanding)
Term
 price-earnings (P-E) ratio
Definition
 (profitability ratio) measures the ratio of the market price of each share of common stock to the earnings per share; computed by dividing the market price of the stock by earnings per share.formula:(market price per share of stock) / (earnings per share)
Term
 payout ratio
Definition
 (profitability ratio) measures the ratio of the market price of each share of common stock to the earnings per share; computed by dividing the market price of the stock by earnings per share.formula:(cash dividends) / (net income)
Term
 debt to total assets ratio
Definition
 (solvency ratio) measures the percentage of total assets provided by creditors; computed by dividing total debt by total assets.formula:(total debt) / (total assets)
Term
 times interest earned
Definition
 (solvency ratio) measures a company's ability to meet interest payments as they come due; computed by dividing income before interest expense and income taxes by interest expense.formula:(income before income taxes and interest expense) / (interest expense)
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