Chapter 17

Question 1

Statement that expresses each amount as a percent of a base amount. In the balance sheet, total assets is usually the base and is expressed as 100%. In the income statement, net sales is usually the base.

Answer 1

Common-size financial statement

Question 2

Statement with data for two or more successive periods placed in side-by-side columns, often with changes shown in dollar amounts and percents.

Answer 2

Comparative financial statement

Question 3

Company’s productivity in using its assets; usually measured relative to how much revenue a certain level of assets generates.

Answer 3

Efficiency

Question 4

Portion of total assets provided by equity, computed as total equity divided by total assets.

Answer 4

Equity ratio

Question 5

Process of communicating information relevant to investors, creditors, and others in making investment, credit, and business decisions.

Answer 5

Financial reporting

Question 6

Application of analytical tools to financial statements and related data for making business decisions.

Answer 6

Financial statement analysis

Question 7

Comparison of a company’s financial condition and performance across time.

Answer 7

Horizontal analysis

Question 8

Availability of resources to meet short-term cash requirements.

Answer 8

Liquidity

Question 9

Company’s ability to generate an adequate return on invested capital.

Answer 9

Profitability

Question 10

Determination of key relations between financial statement items as reflected in numerical measures.

Answer 10

Ratio analysis

Question 11

Company’s long-run financial viability and its ability to cover long-term obligations.

Answer 11

Solvency

Question 12

Evaluation of each financial statement item or group of items in terms of a specific base amount.

Answer 12

Vertical analysis

Question 13

Current assets minus current liabilities at a point in time.

Answer 13

Working capital