Financial indicators Flashcards
What is the objective of financial analysis?
Its objetive is to rearrange data from financial statements into financial ratios that give info about the main areas of financial performance.
What does short-term solvency measure?
It measures the ability of a firm to meet its short-run financial obligations
What does accounting liquidity measure?
It measures short-term solvency , often associated with net working capital
How is net working capital computed?
Net working capital = current assets - current liabilities
How does the current ratio of a firm change?
If current liabilities rise at a faster rate than current assets the current ratio falls, indicating a sign of financial trouble.
What are quick assets?
Quick assets are those assets that can be quicly converted into cash.
They are obtained by substracting inventories from current assets.
What is financial leverage?
It represents the extend to which a firm relies on debt financing rather than equity
What are debt ratios?
Debt ratios provide information about protection of creditors from insolvency, along with the ability of firms to obtain additional financing for potentially attractive investment opportunities.
What are profitability ratios?
They measure the extent to which a firm is profitable.
What are profit margins?
They show profits as a percentage of total revenue.
They reflect the firm’s ability to produce a project or service at a low cost or a high price.
What is the payout ratio?
The payout ratio is the proportion of net income paid out in cash dividends
What is the retention ratio?
The retention ratio is the proportion of net income retained by the corporation for future investments.
