Chapter 13 Terms

Question 1

Liquidity and Efficiency

Answer 1

ability to meet short-term obligation and efficiency generate revenue

Question 2

Solvency

Answer 2

ability to meet long-term obligations and generate future revenue

Question 3

Profitability

Answer 3

ability to provide financial rewards to attract and retain financing

Question 4

Market Prospects

Answer 4

ability to generate positive market expectations

Question 5

Financial Reporting

Answer 5

The communication of financial information useful for making investments, credit, and other business decisions.

Question 6

Comparative Financial Statements

Answer 6

Shows financial amounts in side-by-side columns on a single statement

Question 7

Horizontal analysis

Answer 7

comparison of financial condition and performance over time

Question 8

Vertical analysis

Answer 8

comparison of financial conditions and performance to a base amount

Question 9

Ratio analysis

Answer 9

measurement of key relation between financial statement items

Question 10

Dollar change =

Answer 10

analysis period amount - base period amount

Question 11

Percent change (%) =

Answer 11

analysis period amount - base period amount / base period amount x 100

Question 12

Trend percent (%) =

Answer 12

analysis period amount / base period amount (base year) x 100

Question 13

Common-size financial statement

Answer 13

shows changes in the relative importance of each financial statement item

Question 14

Common size percent =

Answer 14

analysis amount / base period amount (total assets) x 100

Question 15

Current Ratio =

Answer 15

current assets / current liabilities (L&E)

Question 16

Acid-test Ratio =

Answer 16

cash + short-term investments + current receivables / current liabilities (L&E)

Question 17

Accounts receivable turnover =

Answer 17

net sales / average account receivable (L&E)

Question 18

Inventory turnover =

Answer 18

cost of goods sold / average inventory (L&E)

Question 19

Day’s sales uncollected =

Answer 19

accounts receivables / net sales x 365 (L&E)

Question 20

Day’s sales in inventory =

Answer 20

ending inventory / cost of goods sold x 365 (L&E)

Question 21

Total asset turnover =

Answer 21

Net sales / average total assets (L&E)

Question 22

Debt-to-equity ratio =

Answer 22

total liabilities / total equity (S)

Question 23

Times interest earned =

Answer 23

income before interest and tax expense / interest expense (S)

Question 24

Gross margin ratio =

Answer 24

net sales - cost of goods sold / net sales (P)

Question 25

Profit margin =

Answer 25

net income / net sales (P)

Question 26

Return on total assets =

Answer 26

net income / average total assets (P)

Question 27

Return on equity =

Answer 27

net income / average total equity (P)

Question 28

Price-earning ratio =

Answer 28

market price per common share / earning per share (MP)

Question 29

Dividend yield =

Answer 29

annual cash dividends per share / market price per share (MP)